Overnight markets were a sea of red, though Asia was not as weak as it could have been because Japan and South Korea were closed, and thus unable to react to North Korea's attack on South Korea. China, however, declined over 2%.
As for Europe, stocks there lost 2%, plus or minus, as they had to deal with collapsing Irish bank stocks and seeing Spain's spreads move out to all-time highs. The Spooz were lower by 1% overnight in sympathy and those losses were extended in the first hour or so, with the indices shedding almost 2%.
These Clouds Have a Silicon Lining
Even so, the downturn was somewhat half-hearted, as some of the high-flyers (e.g., CRM, CMG, NFLX, OPEN, TSLA, RVBD) were barely dented (if not higher) and a number of tech stocks were also green. One of them, Hewlett-Packard, last night won at beat-the-number thanks to its corporate business, which is doing quite well. Both Dell and HP are doing well essentially for one reason and one reason only, and that is because of all the new products that Microsoft has. Of course, once again, Microsoft stock was clubbed in the melee, this time with a 2% beat-down.
There is a tremendous disconnect in the technology stock arena, as evidenced by squirrelly, momentum-oriented stocks and consumer beneficiaries trading at wild multiples, whereas one company that is really doing well continues to languish. It is a great example of how the psychological component can dominate markets in the short-to-intermediate term.
Turning back to the action, the afternoon saw a rally attempt that didn't get too far and the market closed not too far off the lows, losing 1.5% or so. Despite the amazing strength of the handful of high-flyers, I think the major averages will be in a trading range, with recent high being a bookend to last July's lows.
Away from stocks, the dollar was quite strong in a flight-to-quantity reaction to the situation in Korea. Treasuries joined in but were only modestly higher, while oil lost half a percent. The metals were all over the place, but in the end gold gained 0.75% as silver lost 1.5%.
It's OK to Ignore This Fine Print
There was some anticipation of the FOMC minutes today, but they were essentially a nonevent. After all, who really cares what these clowns had to say a few weeks ago. We know what their answer is to everything: print more paper (i.e., money).
High Definition
Recently, in the Ask Fleck section of my site, I was asked yet again for a definition of the term "funding crisis," as the folks who asked were apparently not able to get the answer by searching the site.
I first started using the term "funding crisis" regularly in the fall of 2008, but one of my tidiest descriptions is from the Rap for May 28, 2009:
"Now I'd like to make a comment about the funding crisis -- the third in the three-baseball-game analogy that I dreamed up last fall as a way to be able to think through all the enormous problems we faced. The first and second games (crises) -- financial and economic, respectively -- were pretty easy for folks to understand, as they were front and center to the news.
"Essentially, the financial crisis now lies behind us (with the economic crisis in full bloom, the recent economic 'bounce' notwithstanding). That, due to all the moves put together by Hank Paulson and other government officials -- which, as those actions stopped the vaporization of the financial system -- essentially gave everyone a do-over. But therein lay the seeds for the funding crisis...[I]f the dollar is called into question (as now appears to have begun) and if the Fed's monetization cannot lower rates (and in fact causes them to rise, due to the consequences of money printing), then the Fed is trapped. The more it tries to solve the problem with money printing, the worse it all becomes."
We Have a Winner. . .
But instead of providing my own definition (again), I asked readers to submit theirs, with the promise that I would award a year's free subscription to my site for the best one. With that bit of context, here is the winning reader definition:
"A funding crisis happens to a country when other nations or institutions believe that the value of its sovereign debt or the value of its currency will decline significantly over time due to poor fiscal or monetary policies. When that happens, fewer and fewer people are willing to purchase the sovereign debt of that country, leading to a sharp increase in interest rates and greatly increased difficulty in the ability of that country to raise new debt. A funding crisis thus refers to the inability of a country to finance itself without resorting to outright money printing. This can lead to a vicious cycle of currency depreciation, rising interest rates, poor economic performance and poor investor sentiment, all of which feed on each other in a downward spiral. A funding crisis can only end when proper monetary and fiscal discipline is restored, usually at the expense of severe economic hardship."
. . .Or Two
This next one actually earned a tie (and a free year's subscription), as it was almost as good and the author used the search function so well:
"In gentle criticism to the Rap Reader who inspired this little exercise, it may be useful and prudent to read a majority of those 'so many references' pertaining to the 'Funding Crisis.' I searched 'Funding Crisis' and read everything that had a score of over 25. In this review, I discovered you started describing the 'Funding Crisis' in the middle of 2006, but you did not give it a 'handle' until late 2008. I am glad I participated in this exercise as I learned a great deal and have a more clear financial picture of where we have been, where we currently are and where we may be going.
"A Funding Crisis is the successor to the financial and economic crises, created mainly as a result of Federal Reserve policy over the last twenty years. A funding crisis occurs due to a lack of credibility in the Federal Reserve (and the United States) to instill confidence in the value of the U.S. dollar and repayment of current and future liabilities. The result of a U.S. funding crisis is: a declining value of the U.S. dollar and rising interest rates in debt markets."
There were a number of other entries in the Honorable Mention category that made good points, but missed the winning mark for one reason or another. Readers can see those, along with the winning definitions, in the Special Features section here (subscription required).
Once again, thanks to everyone who took a shot, and congratulations to the winner(s).
Disclosure:
Positions in stocks mentioned: long MSFT.
