Friday, October 21, 2016

New York Stock Exchange

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The global economy has gone through whirlwinds of bad news lately, culminating in Wednesday’s barrage of negative and strange happenings.

The world is still abuzz about Sunday’s Greferendum, in which the Greek electorate rejected terms from their European creditors. In the wake of that momentous vote, Germany hardened its stance toward Greece, while the US and France, in concert with the IMF, pushed for debt relief for the struggling Mediterranean nation.

Pundits and financial analysts from influential journals and banking institutions are split on whether the OXI vote means an imminent departure from the Euro Zone for Greece. The Obama administration has expressed a strong desire to see the EU remain together.

Continued Greek default endangers the economies of Spain, Italy, France, and Germany, and nations that have bitten the austerity bullet and come through stronger like Iceland and Ireland are not in favor of granting further concessions.

Turmoil and uncertainty in Greece and the EU at large has dominated headlines, but Monday the markets didn’t show much of a reaction.

Thousands of miles away, though, the Chinese markets are enduring an extended collapse. Since mid-June, stock markets in China are down over 30%, losing in total more than $3 trillion and counting. That’s more than a quarter of the Chinese GDP.

The Chinese central bank, the PBoC, took the unprecedented move of injecting $19 billion of capital directly into the market, but only barely slowed the flood. On Wednesday the markets were down another 6%.

Analysts estimate that about 85% of the Chinese stock investments are from the working class, which means the average Chinese worker has been forced to watch their life savings evaporate. Even worse, over the last year China has seen a 900% increase in buying on margin – in other words, borrowing the money to buy stocks. The indebtedness of the general population combined with the rapidly disappearing value in their investments could lead to a major Chinese recession, or even depression.

Meanwhile, a recent study by the Mercatus Institute shows that only a handful of states in the US – specifically, those currently flush with natural resources like oil – are in anything resembling good financial shape. The rest are slashing spending on education, and raiding pension funds to pay bills.

Overall the US is still struggling to overcome the crash of 2008, with the Labor Force Participation rate staying at or near historic lows all year so far. Recent studies indicate that younger folks are increasingly having difficulty finding jobs, and older people are increasingly hanging on to them. In fact, since 2000, the 55 and over demographic is the only one (by age) that has seen an increase in jobs.

Against this troubling back drop came a cascade of news Wednesday.

Everything seemed to be happening at once, but, in some order, the Chinese declared a moratorium on large traders selling, United Airlines had to delay or cancel over 800 flights, several leading websites devoted to economic news were shut down, Microsoft announced the second largest layoff in its history (7,800), the minutes of last month’s FOMC meeting were released and suggested a looming US Fed rate hike, and the New York Stock Exchange shut down for four hours. Markets worldwide took a tumble in response to the craziness.

China, as previously noted, saw a 6% decline overall. The Chinese government has suspended sell-offs by all large stock holders for a six month period in a desperate bid to halt the freefall. Like the capital investment on Monday, it seems destined to be too little, too late.

Microsoft opened the news cycle in the USA with its announcement of 7,800 layoffs, primarily from its phone operations. The tech giant also announced a $7.6 billion write off from its acquisition of phone maker Nokia.

United Airlines had “degraded network connectivity” from a router leading to its problems. Flights were grounded for about two hours, and there were continued delays throughout the day.

In seemingly unrelated events, the New York Times, CNBC, Zero Hedge, the Wall Street Journal, and other websites and blogs that report on the global economy all went down for varying periods of time in the morning hours Wednesday. They were all back online by about 11:30, just in time for…

The New York Stock Exchange stopped processing most trades, and formally shut down around 11:35 EDT. The Exchange blamed “software updates” for the malfunctions, and remained closed for four hours. That is the longest closure for the NYSE since Super Storm Sandy in 2012. The Dow Jones fell 1.47% on low volume.

The various computer problems were generally deemed as unrelated, and not malicious. However, the hacker group Anonymous tweeted a message Tuesday speculating that the stock market would have a rough Wednesday.

“Wonder if tomorrow is going to be bad for Wall Street….” read the tweet. “We can only hope.” The DHS, the NYSE, and the Obama administration all made official statements to the effect that there was no indication of hacking. A glance at the huge array of computer problems all striking at the same time, though, coupled with the warning from Anon, strains the limits of credulity in these statements.

Anonymous has previously hacked several government and political party websites and e-mails, including Sarah Palin’s e-mail, and ISIS operations accounts.

Minutes of the Fed meeting indicating a rate hike later this year were released in the early afternoon, while the market was still closed. Bonds, T-Bills, and the dollar all fell following the news.

With so much bad news packed into one day, it seems some good ought to be right around the corner. Unfortunately, given the nature of these tidings, things are likely to get worse before they get better.




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