Friends
Central banks around the world continue to provide liquidity in the form of bailouts, guarantees, low interest rates and asset purchases, but there comes a time when the “drugs” just don’t work anymore. You know, how when a patient is continuously given antibiotics, there comes a point when the drug just stops being effective. It sure looks like on the world economic front we have reached a point where “easy money” just doesn’t seem to be working anymore. We cautioned about this in our 2nd quarter outlook, and today’s response in markets here and abroad indicates that we may be reaching the point of diminishing returns.
After a more than $100 billion Euro Spanish bank “bailout”, stocks rallied for about 5 minutes this morning (no really, it was only about 5 minutes) as the Dow Jones Industrial Average climbed about 95 points. But within minutes, selling began and the averages struggled for the remaining of the day. The Dow finished the day down 142 points to close at 12,411. The S&P 500 was down 16 points to close at 1308. Once again that resistance area around 1325 proved formidable. Gold was up $9 to trade at $1600 per ounce, and oil was down $2.67 to trade at $81.43 per barrel WTI.
It looks like last week’s rally was mainly attributed to shorts covering before the rumored Spanish bank deal, or perhaps the bulls “buying the rumor”. But as we see today it was more of “sell the news” as traders now focus on this coming weekend’s Greek elections (oh boy!). We’ll let you know how the week plays out, but it is becoming apparent that after more than 3 years of Central Bank intervention (remember, don’t fight the Fed?) you finally start to get diminishing returns.
Have a nice evening everyone.
