They were tanking on news that the latest European summit was unlikely to be a game-changer, that U.S. gross domestic product was a paltry 1.9% in the first quarter, and a New York Times story that JPMorgan Chase's derivatives loss could top $9 billion.
Then came the long-awaited decision from the country's highest court on the divisive healthcare law, the Patient Protection and Affordable Care Act, which unhinged markets further.
The Court's historic decision shook the markets for several reasons.
But the single overriding effect of the mixed-bag decision will be its impact on markets going forward.
That's because the divided decision further fuels partisan politics going into the November elections and sets the stage for an all-or-nothing battle between Republicans and Democrats.
The chances of there being any compromise anywhere on any divisive issues before the elections is now mathematically zero, where before it was somewhere between slim and none.
The Bigger Issues Behind the Obamacare Ruling What the markets now face aren't just healthcare, tax and spending issues.
As a result of the Court's stunning decision, we face something much bigger -- Constitutional issues of the highest and deepest order.
The High Court, with Chief Justice John Roberts unexpectedly siding with the Court's four liberal justices, rendered a 5-4 victory for President Barack Obama's prized legislation.
The ruling upholds the "individual mandate" that requires citizens to either pay for "minimum essential" health insurance or pay a "penalty" through the IRS as a "tax" towards offsetting the shared costs of national healthcare.
But the Court also struck down the Act's provision allowing the Federal Government to effectively "hold a gun to the head" of states if they failed to increase Medicaid benefits, largely expanded under the new law.
In its original form, states could lose all Federal funding of Medicaid for non-compliance with Federal demands.
By its decision the Court effectively admitted that the Commerce Clause argument underpinning the individual mandate's Constitutionality was null and void.
But while they said that the individual mandate that "forced" citizens to buy health insurance wasn't intended as a "command" that fell under the Commerce Clause, they incongruously flipped the argument on its head and agreed (by a one-vote majority) that the mandate was legal under Congress' authority to "tax" citizens for the benefit of the nation.
What's distilled from these decisions could come down to the question of a legal distinction. If by claiming the Commerce Clause's ability to govern citizens "from cradle to grave" isn't what the Framers of the Constitution ever intended and is unconstitutional, then how could the same argument in different clothing - the Congressional ability to levy taxes - have that same power to essentially influence (force) behavior from cradle to grave?
The core Constitutional issues are at the same time unambiguous and subject to Congressional interpretation vis a vis their ability to level taxes.
Sounds to me like taxation without representation all over again.
And it's not just an American issue. Europe is facing the same set of taxation issues if it moves towards a pan-European bank oversight regime with taxing powers to safeguard the Continent's banking systems.
I asked noted New York securities attorney Bill Singer how he thought the Court's decision would impact the markets.
He said, "As to the ramifications for the securities industry, one only need to cock an eye towards Dodd-Frank and all of the aspirational mandates that Congress has left to the SEC and the CFTC to craft and draft into rules and regulations."
That means the writing on the wall is far from being written in indelible ink.
And on the subject of what the effect the Constitutionality questions inherent in the decision might mean to Europe, Dr. Singer suggested, "A secondary and equally important lesson from today's ruling is how it serves as a model for all those Europeans now wrestling with the concept of a fiscal and/or political union. Our Constitution still bleeds when cut over the issue of state's rights and that tension remains part of the fabric of our society. Europe would be well advised to seek a similar compact that preserves the rights of constituent states and individuals on a continent that has too often found itself enamored with emperors, empresses, kings, queens, and horrendous dictators."
In other words, don't expect markets to calm down any time soon.
Shah Gilani, Capital Waves Strategist
According to Shah, the markets are broken. And what has to be done to fix them likely won't get done. The good news is he can teach you how to win. To learn more click here.
About the Author
Shah Gilani is considered one of the world's foremost experts on the credit crisis. He not only called for the implosion of the U.S. financial markets, he also predicted the historic rebound that began in March 2009. Shah is the editor of Capital Wave Forecast and Spin Trader. He also writes Money Map Press’s most talked-about publication, the Wall Street Insights & Indictments e-letter, where he reveals how Wall Street's high-stakes game is really played, and how to win it. Learn more about Shah on our contributors page.
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