The S&P downgraded Spain yesterday.
That sent our markets tumbling to the day’s lows and rightly so. After all, how much better does our economy look than Spain’s (8th largest in the world)? It’s certainly worse on a debt to GDP basis by a wide margin and so is Austria, Belgium, France, Germany, Greece, Hungary, Italy, Ireland, Japan, Netherlands, Portugal and, of course, the UK – who are particularly worrying because they also have one of the largest bank assets to GDP ratios (570%), which means the country would be hard-pressed to stop a major slide in the financials, which is what, ultimately, undid Iceland.
Wouldn’t it be lovely if we didn’t have to worry about these things? We’ve grown accustomed to facing Greek debt and no one is even asking why can’t the English pick a government but just you wait, because it will take more than a litle bit of luck before this market is off to the races and we can once again dance all night instead of worrying about what’s going to happen in the morning. Until, then, we’re going to be staying mainly in cash, although some would say that ain’t nothin’ but trash – so we hedge it with TBT, of course!
Yesterday morning’s news prompted me call for an EDZ hedge in Member chat, which is an ultra-short on the emerging markets and Spain’s very close ties to South America make it a very prominent domino if things begin to fall apart. Things are already falling apart in China, where the Hang Seng dropped another 170 points this morning and 200 of them came after lunch, right into the close. That drops the Hang Seng all the way to 20,778, down 1,000 points (just under 5%) since Monday and now 7.5% below the April 12th high at 22,400. India also got whacked for 1.7% and the Shanghai continued to tumble while Japan was mercifully closed today:
If this set of charts made you spit coffee on your keyboard, you are not alone – that’s what happened to me when I pulled up the 2-month set this morning! Yes, this is the planet Earth – although obviously not a part of the planet covered by the US media, nor part of the planet where the FOMC (not you Hoenig – you are my hero!) says:
- Economic activity has continued to strengthen
- Business spending on equipment and software has risen significantly
- Financial market conditions remain supportive of economic growth
- Inflation is likely to be subdued for some time
- The Committee anticipates a…
