This Stock Market Is a Titanic in Search of an Iceberg

What was that sound? Did you feel a little bump?

Nah…don’t worry about it. Go back to your cabin and have a good sleep.

Just when things were going so well! With all that GDP growth! All those new jobs! We were all set to believe that the US economy really had recovered from the shock of 2008.

What does the stock market know that these happy numbers aren’t telling us?

Yesterday, the Dow dropped more than 300 points. Gold fell $14 an ounce. There may be nothing more to this than a case of the jitters.

Or could it be something more?

Did Russia and Argentina spook investors?

Remember, if we could just avoid our worst days…the ensemble of our lives would be much, much better.

Think how nice Julius Caesar’s life might have been if he had just stayed home on the Ides of March, as his wife, Calpurnia, advised. Think how much better the passengers would have enjoyed their cruise if they could just forget the night the Titanic hit an iceberg.

As for investors, had they just stayed in cash for the 10 worst days in the last 25 years, their annual rate of return would have been about 60% higher.

Don’t worry. Last Thursday was hardly one of the 10 worst days. It wasn’t a good day. But it wasn’t terrible. Just a bump. Which makes us wonder. Are our worst days behind us, like icebergs astern? Or ahead?

And if so, where?

The news last week mentions two proximate causes of the selloff. The sanctions on Russia…and the default by Argentina.

As to the default by Argentina, anyone who claims surprise must not be paying attention. Argentina has been a poor credit risk for a long time. The gauchos have a whole different attitude towards paying their bills.

Down on the Pampas, when you stiff your creditors, you don’t hide your head in shame and look for a loaded revolver. No, you go on TV and explain why you are a national hero.

That’s what Axel Kicillof did. He’s the country’s 42-year-old economy minister. And he’s angling to become the next president. Cristina Fernández de Kirchner, the present officeholder, is desperate to help him.

Because if she can get Kicillof to fill her shoes, she can retain a bit of power herself…maybe enough to keep herself out of jail.

Who didn’t see these icebergs?

Argentina deposited $539 million in interest payment on one of its bonds due in 2033 on time. The problem was that US District Judge Thomas Griesa ruled the payment illegal because it violated his ruling on the case.

Griesa had made it clear that Argentina must include a court-ordered payment of $1.33 billion, plus accrued interest, to the ‘holdout investors’ for the country to avoid default.

All of which makes us wonder if a single investor was surprised by the default…and whether it really had anything to do with yesterday’s US stock market selloff.

The same thing could be said for sanctions against Russia. Who didn’t see that iceberg? Who thinks his US stock — IBM, GE, AMZN, whatever — is worth less today than it was yesterday because Russian firms now face a less friendly world?

Read the rest of this article at The Daily Reckoning