The End, French Style

Today’s seismic shift in sentiment on Wall Street was due in no small part to the courageous vote by the citizens of France in turning down the proposition on ratification of the EU Constitution on Sunday. Their nay-saying to the much of the conceptual structure of the European Union struck a major chord for national identity and self-determination over the collectivism of the EU.

The ramifications of this vote are likely to be far-reaching and extremely liberating. In essence, the people of France turned thumbs-down on massive government apparatus as well as their own national government. They have said to the world, "we have had enough, we are French, and we are free."

It was better than any Bastille Day celebration ever.

While I don’t intend to have this column devolve into a political rant, the ramifications of France’s "non" will surely be felt in political and economic circles worldwide. Average citizens in every nation will be affected in some manner over the next decade and beyond. We are likely to see the dissolution of the EU as a partnership of nations and the Euro as a currency.

There will be more on this as our little orb careens through the heavens. The effects will take time, but they will be devastating to politicians and good - in the long run - for Joe and Jane Sixpack and their ilk.

The reactions on Monday and Tuesday were easy to access. Most national leaders in Europe: dismay; most other world leaders: I’m feeling faint; the White House: stunned silence; the markets: down and downer.

It was probably a good thing that the US markets were closed on Monday, as a worldwide calamity was probably averted, giving the manipulators more time to figure out a way to spin the news and keep various ships of stock afloat.

While they may have held off the inevitable for the short term, the inevitable, is, after all, inevitable, so delaying the process of unwinding credit excess and massive asset overvaluation only keeps the pain coming in a slow but steady dose instead of all at once. This seemingly preferred method is something akin to torture, which is hear is all the rage these days.

In other words, would this be a good time to sell stocks? You betcha.

The Dow Jones Industrials lost 75.07 points, the NYSE 50.53 and the Nasdaq a mere 7.51. The session was overall awe-inspiring if only for its general lack of substance. Since Americans are generally of the numbskull variety of homo-sapien, I guess our intrepid traders were awaiting some kind of indication, like a bell or buzzer to go off, instructing them to sell everything. They didn’t hear one, so everybody kind of stood pat and watched other guys selling. Hint: those other guys were all guys named Pierre, or Nils, or Umberto.

The major exchanges remained in current form, with the NYSE completing more trades than the Nasdaq, but new highs - new lows were really out of whack, with new highs taking the day by a margin of 134-23 on the NYSE and 89-43 on the Nasdaq. Those are quite healthy margins of separation and warrant close scrutiny over the next seven or eight sessions. Naturally, we are well off recent bottoms, so there is likely a bit of momentum play and bargain hunting affecting those numbers.

Advancers and decliners were in a virtual dead heat overall, with a slight edge to the former on the NYSE and to the latter on the Nasdaq.

As expected, the US Dollar posted solid gains against the Euro and other major currencies. The notable exception to the rule was the Canadian Dollar.

Over in the bond market the yield curve took another step towards inversion as the 10-year treasury fell to 3.98% as bonds rallied strongly. The 2-year fell in yield from 3.63% to 3.56%, putting the 2-10-year spread at a mere 42 basis points.

Interest rates are falling fast, but the Fed continues to insist on raising rates. With the next FOMC meeting scheduled for June 29/30 and the committee widely assumed to be ready to hike the overnight lending rate another quarter point, inversion could occur by the end of the month. As it is, the markets are largely ignoring the Fed, so we may be heading into the aftermath of the ’soft patch’ - which is normally called recession - in short order.

Commodities were completely perplexed, as those with commercial use, oil and silver, were up, while gold was down. A barrel of light sweet crude for July delivery checked in at $51.97, up 17 cents on the day, while silver went nearly ballistic, up 14 cents to $7.45. Gold lost its lustre to the tune of $3.50, closing at $418.90.

Another exciting day in the world of high finance with many more to come, and soon.

Vive la France!

Don Bravo’s financial column, Market Matters, appears daily, along with complete archives and other economic information, on the business pages of Downtown Magazine.
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