Right out of the gate this morning, the market bolted to the red. I see no reason for the recent market panic other than it is summer and traders hold sway in the market. Fundamentally, the market environment has not been this sound in years.
- U.S. stock index futures fell on Wednesday, with S&P e-minis at a more than two-month low, on worries of an escalation of the conflict in Ukraine and as key merger and acquisition deals fell through.
Okay, if you say so. A couple of big deals fall through and the ongoing stupidity in Ukraine are enough to turn the market upside down, again. That’s my point – these are not reasons for any market panic. These are excuses for traders to sell and the buyers are watching and waiting for the computers to finish doing their thing.
- The U.S. trade deficit narrowed more than expected in June as petroleum imports dropped to a 3-1/2 year low, suggesting that trade was less of a drag on second-quarter economic growth than initially thought.
The above exemplifies my point about this market and it supports another I made just two days ago – oil prices are dropping and this fact alone could help the US GDP grow even further this coming fall. In fact, I would not be surprised to see the 4% growth rate that just came out to be revised upward because of the trade deficit narrowing, Check this out.
- Exports were supported by a surge in automobiles, parts and engines, which rose to a record high.
- Exports of consumer goods were also the highest on record.
- Rising exports bode well for economic growth prospects for the rest of the year.
Watching the market, it is clear the bulls do not have enough oomph to take the market solidly into the green. Give credit to the few fighting valiantly, but the bear pressure is simply too great right now. The market wants to fall, despite solidly improving economic conditions and the rather solid earnings.
Imports, oil prices, and the market are not all falling in this current environment. Going back to a time not too distant past when the breathless media was pumping up fear about the US debt …
- U.S. budget deficits have been falling since 2009. The 2014 gap will be 2.8 percent of gross domestic product, according to the Congressional Budget Office. The projected deficit is down from 9.8 percent of GDP in 2009, when President Barack Obama took office.
True, the US is still adding to its debt, but at a much lower rate than it was five years ago. Accounting for some GDP growth in the last five years, the distance between 9.8 and 2.8 shrinks, but not by much. This too is good news for the US economic environment.
So, the US debt boogeyman failed to inspire the collapse that the hilltop screamers called for way back when, but, alas, we just might have a new boogeyman, and the scary creature comes from our big neighbor to the east – China.
- The small companies that dominate China’s private market for high-yield bonds face rising default risks as their debt obligations soar to a record and economic growth slows to the lowest level in more than two decades.
The facts of this case are, more than likely true, as they were back when US budget deficits were 9.8% of GDP. It is the implied conclusion that is questionable; yet, it is something to keep an eye on.
- The number of Chinese firms whose liabilities are double their equity has surged since the global financial crisis, suggesting more defaults may come, data compiled by Bloomberg show. Publicly traded non-financial corporates with debt-to-equity ratios exceeding 200 percent have jumped 68 percent since 2007.
I don’t what the above numbers mean, as I have no context, but if the number of companies with such high debt-to-equity ratios is a large percentage of the Chinese economy, we just might have a problem Houston, and if we do, you can bet the breathless media will make take off with it.
I love my outnumbered bulls. They are still fighting hard to turn the market around, even if the tide is going against them.
Trade in the day; invest in your life …
