Market's desperate to rally despite China's decline

The fly in the ointment this week for debt and commodities markets first and then stocks is Glencore.

This mining and commodities conglomerate is on the verge of having its debt labeled as junk, which will cause many debt holders into panic selling mode since they are not able to hold junk debt in their funds.

The cratering oil and metals market have almost taken this European company out in September and now most of its debt is trading at less than $0.60 on the dollar with a bond rating that’s one step from junk.

The stock is down 65% over the last 6 months, despite a 13% run up on Tuesday.

China came in with its slowest economic growth in 25 years. Coming in at 6.9%, which was just below expectations, but that was enough to get markets moving higher.

Equities and crude prices jumped on the not so bad news. It’s called a relief rally and the snap back is needed to flesh out some short sellers and bring markets to a short-term equilibrium.

There’s been — since the first of the year — a tremendous amount of cash on the sidelines that needed to be put to work. Retirement and annuity funds have been looking for a window to put cash into stocks and bonds.

So despite China coming in weaker on GDP and three other measures of growth, the markets will seize the opportunity to charge higher on anticipation that China may need to ease further to spur growth.

That’s for today, and that means we may get back to last Friday’s market opening levels, if. Lastly, Dow and S&P 500 futures are up 1.6% at 7am EST. I’m thinking that might be the high today, let’s see where they finish.

One quick note. Very sorry to hear Glenn Fry is Already Gone. Loved the Eagles, big part of my music growing up. RIP partner.


Greece debt package crumbles like Feta

The Greek middle is not holding.

The Deputy Finance Minister Valavani resigned this morning. In an open letter to Prime Minister Tsipras, Valavani says it’s not about debt restructuring, it’s about Greeks being able to stay alive after the government passes the measure.

Christine Legarde said Wednesday that the IMF will not be able to participate in this refunding bailout of Greece because the organization cannot participate in loan sharking operations, per its charter.

Lagarde is saying what I have said all along. Greece had debts no honest man can pay, and therefore needs a Marine-style haircut on its debt, before the IMF can become involved. There has to be a possibility of repayment and to be able to grow its economy.

I cannot see how the Greek parliament can pass these draconian measures to enslave their people for decades, with no viable escape from the debt.

One government estimate has the payment on the debt in 2020 will amount to over 300% of estimate GDP. No this can’t work and it should be voted down.

It’s not like re-opening the banks depends on the vote, because there are reports that regardless of the vote outcome, the banks will be closed until August at the earliest.

China released three key economic reports on Wednesday, that all beat the consensus estimates.

  • Retail Sales was up 10.6 percent over last year with expectations of a 10.2 percent gain.
  • Industrial Production rose 6.8 percent beating expectations of a 6.0 percent rise.
  • GDP rose rise 7.0 percent eking past 6.8 percent estimate.  It’s the lowest since beginning of 2009.

Chinese equities took data with a large grain of salt and closed lower on the day, somehow perhaps not believing in the numbers.

So once again the slowing Chinese economy — the biggest fear on the globe — will be pushed aside for the time being as the government numbers have to be accepted until they aren’t.