|Dow||-315.51 to 17,280.83|
|S&P 500||-33.00 to 2,002.33|
|Nasdaq||-54.57 to 4,653.60|
|10-YR Yield||-0.08 to 2.103%|
|Gold||-$2.30 to $1,223.40|
|Crude Oil||-$2.22 to $57.63|
Stock markets are crashing!
No, not the Dow Jones Industrial Average. Or the S&P 500. They’re down sharply, but are actually only a couple percentages off their all-time highs.
But what about the Nigerian Stock Exchange All Share Index? Take a look — it’s down 21.8 percent in 2014 already, including 8.4 percent in just the past 10 days!
Or how about the iShares MSCI Mexico Capped ETF (EWW)?
It’s the benchmark ETF here for the Mexican stock market and it’s falling off the table! It has plunged 6.7 percent in just the last week!
Then there’s the iShares Malaysia ETF (EWM). Again, this is the benchmark U.S. ETF for that country’s market and you can see it has collapsed 16.9 percent just since the summer … leaving it at the lowest level since the summer of 2012.
I could show you a chart of Russia’s currency, the ruble, and it would tell the same sad story. It has now plunged more than 44 percent in value this year! Or I could show you a chart of how much it costs to ensure Venezuelan bonds against default in the credit default swap market. You’d see that it now costs more to buy default protection than it did even at the depths of the 2009 global credit crisis.
What’s the common thread?
Falling oil prices, falling commodity prices in general, and the rising dollar — all of which are causing the flight of capital OUT of emerging markets and IN to ours.
Oh and for good measure, Greece’s stock market just crashed the most since the 1987 global market wipeout. The catalyst? Fears a new government will come to power in an impending election, and that will lead to the country pulling out of the euro currency union.
What does the price of a share of stock in Abuja … or Mexico City … or Kuala Lumpur … or Athens … have to do with the Dow? So far, not much. While energy stocks here have been falling along with those markets, as I mentioned, the broader averages haven’t gotten hit for much.
But with junk bonds selling off aggressively now in sympathy with crude, and the list of sagging global markets getting longer, is that poised to change soon? It’s certainly a potential risk.
|“What does the price of a share of stock in Abuja have to do with the Dow?”|
We’ve benefitted from the Global Money Tsunami so far, because our markets and our economy have attracted money fleeing riskier locales. But at some point, the damage could get bad enough that it spurs contagion fears. Then it’s a threat to almost every asset except for cash.
I don’t think we’re there yet. But you should at least be aware of what’s going on in far-flung markets — just in case some of that turmoil washes up here!
So with that in mind, what are your thoughts on emerging markets? Is the recent carnage overseas justified, and do you see it getting even worse? Or are we at a point where some kind of policy response — whether from fiscal or monetary authorities or heck, even OPEC — is about to occur? Are you raising cash as a buffer against potential turmoil, or just plowing straight ahead? Point your mouse to the Money and Markets website and give me a heads up!
|Our Readers Speak|
Is the sharp drop in oil prices good? Bad? The best thing to happen to the U.S. economy … or the worst? Many of you sounded off on those issues in response to my most recent column.
Reader Ken said: “Clearly our ‘friends’ the Saudis are trying to collapse the U.S. self-sufficient energy effort. The U.S. should slap a tariff tax on all oil imported from Saudi Arabia or any other country that attempts to undercut our homegrown oil business!
“We need to be independent to be safe. Yes — oil start ups with no skin in the game should merge or be bought out to reduce the debt that is piling up. The remainder should be protected as described above.”
On the other hand, Reader Paul said: “Are you kidding me? Since when is $60 a barrel oil considered so outrageously under priced that it is time to put tariffs on it? Is everybody so brainwashed by the oil companies that we now think oil is cheap at 60 bucks a barrel?
“So maybe the oil companies may not be making more money than every other company in the entire world anymore, but now may be the 2nd or 3rd most profitable. Well boo hoo … I own a very small business and when it costs me a hundred dollars to fill the tank on my work van, that is a hundred dollars that I don’t have to buy other things my business needs or to buy health insurance or even groceries.”
But too much of a “good” thing may be bad, according to Reader Joseph. He said: “Cheap oil sounds good. But when it reaches too low, many of the small companies will collapse and the bank loans will cause the companies to shut down.
“More people out of work and the oil supply goes down and the price back up. Maybe not to $100, but surely to the $85 – $95 range. We need a balance for the price of gas and the production of oil.”
Reader OM had a similar take, saying: “Two-edged sword here. Cheap energy is great for GDP through consumer spending and great for energy-intensive industries which are already coming back to the U.S. But it’s not so good for banks and bond holders that have billions on the line in companies who are feeling the squeeze.”
Those are all great perspectives, and I’m glad you shared them. Personally I think the U.S. has become much more of an energy producer over the past few years rather than just an energy consumer, as we were for much of the 1990s and 2000s.
Some in government may think we’re just sticking it to the Russians, the Venezuelans, and other countries that don’t like us very much by doing nothing as prices collapse. But we’re also shooting ourselves in the foot by not using diplomatic or other channels to try to stabilize things.
Collapsing prices could kill off a chunk of the domestic industry that has helped get us out from under the boot of unfriendly, foreign energy providers. Is that really a smart foreign policy approach? As always, hit up the website here to add your thoughts!
|Other Developments of the Day|
One reason I’ve been combing through the wreckage in the energy sector: I believe the energy giants with stronger balance sheets are likely to start swooping in and buying up cheap stocks, cheap acreage, and cheap oil and gas in the ground.
Sure enough, reports out of Spain suggest energy giant Repsol SA is about to buy Talisman Energy (TLM, Weiss Ratings: C-) of Canada and there are reportedly some other bidders circling as well.
Wall Street banks offering favorable post-IPO research from analysts in exchange for being awarded the underwriting business? Perish the thought! Oh wait, that’s just what the Financial Industry Regulatory Authority (FINRA) accused 10 securities firms of doing. They were also forced to cough up $43.5 million due to questionable practices tied to a Toys “R” US IPO in 2010 (which ultimately didn’t happen).
The House passed a $1.1 trillion funding bill late last evening, ensuring that there wouldn’t be a last-minute government shutdown. The tension stemmed from objections to multiple provisions among the liberal wing of the Democratic Party.
Massive winter storms on the East Coast and Upstate New York grabbed headlines a couple weeks ago. Now it’s the West Coast’s turn. California is getting battered by wind, rain, and snow, with reports of hurricane force winds, widespread power outages, flooding, and mudslides coming in.
Looking to comment on any of these headlines? Or any others that caught your attention today? Then make sure you use the website as your outlet.
Until next time,