Random Thoughts: The Social Implications of Argentina
Unintended consequences earn their reputation for a reason.
The world's wildest reality show is in full swing as corporate earnings collide with a bevy of European debt auctions. I can process and assimilate a multitude of information with the best of 'em—it's both a blessing and a curse—but even my head is spinning given the sheer abundance of what we're witnessing.
Where to start? How about Argentina? That, to me, is one of the biggest stories of the week that has somehow been lost in this shuffle.
Lest you missed it, Repsol (REPYF) was in talks to sell its YPF SA (YPF) stake to Sinopec (SHI) right before the Argentine government took its ball—or, in this case, its oil company—and went home. No free-market solution, no higher bid, no courtesy call; they just up and nationalized their oil industry, which pretty much means they’ve removed their entire country from the capital market structure.
This has all sorts of implications for social mood—does this set a precedent? Will other countries, in lieu of austerity and upward taxation, take back their assets? This has an eerily familiar ring to it!
To wit, circa 2006:
I offer this not only in the context of our societal fabric but with regard to the growing trend of nationalization and tendencies of international hoarding.
Bolivia, Venezuela, Brazil, and other countries flush with natural resources denominated in dollars, seem to be losing patience with our current reserve currency.
Remember, we pointed to globalization on the front end of the bubble as validation and rationalization of a rising tide. There are two sides to every trade and they both warrant our attention as seeds of isolationism continue to sow.
I know, I know, even a broken clock is right twice a day—I get that—and I'm not smart enough to know if it matters now (truth be told, stocks have thus far thumbed their nose at this). But, as we strive to see both sides to every trade, every day, we must let this marinate a bit.
I will remind ye faithful, particularly those who are new to our community, that we long ago offered that credit of a different breed—that of credibility—would be the issue at hand for markets at large (if we continued on that particular path). That was more than four years ago and the dynamic is cumulative in cause and effect.
This may well be another chapter in "The Book of Financial Systems" that our grandchildren will one day study. One can only hope this doesn't take The War on Capitalism to an entirely more disturbing level, one that provokes countries to take matters into their own hands.
Some Random Thoughts:
The S&P tested the 50-day moving average (1379) this morning and bounced in kind. Watch the reaction "in and around" this level as technical types most certainly are (and you always wanna know what other traders are looking at).
The banks are a primary tell as the reaction to (earnings) news is more important than the news itself. Deutsche Bank (DB) and Barclays (BCS) are the overseas proxies while Goldman (GS) and Morgan Stanley (MS) are stateside tells.
Spain is down another 2%; please note that IBEX 6700 was the low tick in March, 2009. I will also share that numerous DeMark indicators are starting to align on the buy-side for this troubled euro-member nation, if you're into that sorta thing.
They sure seem to be throwing a lot at this tape, eh? Qualcomm (QCOM) (-5%), Spain, IBM (IBM), Intel (INTC), Google (GOOG)... but the broader market hangs tough. That must be respected, regardless of which side of the ride you're on.
You know the bull case—it was laid out in spades yesterday morning—and we understand expiration influences shape the tape in the sessions prior to the actual expiry (tomorrow).
See both sides, manage risk (don't chase reward), and remember that there's no shame in admitting it's hard; there's only shame in pretending it's not.
- May peace be with you.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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