Wednesday, November 9, 2011
Their brief words say it all:
"Ugly day for stocks. As it was an ugly day everywhere. Europe getting worse at an accelerating rate, and it’s not clear if there are any quick fixes available this time."
Dow closed down 389 points! It was an "ugly day"!
"German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe -- the euro zone moving ahead more rapidly than all 27 countries in the EU -- was the only model for the future." There's more, and it ain't pretty: "The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on towards deeper economic integration, including on tax and fiscal policy."
Alright! Collectivism rules! We're ALL collectivists now! Hey, when did we elect the Borg collective to the White House? But their queen is a whole lot hotter than Emperor Obama! Or is Soros the queen of the hive? I forgot which! Make sure to wear your drone uniform to work tomorrow, implants and all. "Resistance is futile! You WILL be assimilated!"
The stock market collapsed following this news. Dow just hit 400-point loss!
So now, having seen two governments in Europe implode this week, and having seen the stock market rise strongly in response, we wake up this morning and realize that the DEBT hasn't gone away, but now, we no longer have governments in Italy or Greece to deal with the debt crisis. So we have both a fiscal crisis AND a political crisis now!
I need to pinch myself to make sure this is real life!
And the big money on Wall St thinks that Europe's problem is just Europe's problem, and that it is contained there. Europe has the highest GDP of any continent on earth; it's even bigger than that of the United States. They dismiss the facts that 1) Europe is now officially in recession, that 2) this is going to impact the earnings of American companies doing business there, and 3) those American companies are going to have to reduce their profit projections, and 4) reduce their headcount (ie., higher unemployment) here at home. They also dismiss that 5) Italy's government is considered to be too big for the rest of Europe to bail out! They also choose to believe that things are "different" on this side of the pond, despite that we are only a few steps behind Europe in the debt parade!
And Italian bond yields have now surpassed the 7% yield milestone. And now, France' bond yields are starting to rise. As one of only two AAA-rated governments remaining in Europe, the bond market is beginning to speak, as the bond vigilantes are now seeing France' debt as problematic.
There is some good news, however, the Dollar has broken out and is rising powerfully, sending the price of commodities lower. We may soon be able to afford to eat, drive, and heat our homes again!
Stocks have dropped sharply during the overnight session. Here's a hint why:
It begins and ends with a big "E", ends with a little "e", and fittingly finishes at the end of a self-tied "rope"! Perhaps this is symbolic of what the continent is doing to itself!
Meanwhile, investors are now demanding much higher interest rates on Italian government debt because the contagion is spreading. Rates are now nearing 7% on Italian bond debt. Investors who buy Greece' bonds are now demanding an interest rate of 200+% -- per YEAR! The expectation of default is so high that an investor will triple his/her money in just one year if Greece doesn't default within that year. Italy is at the same level now that Greece was just a few short months ago.
Tuesday, November 8, 2011
It's taking increasingly fat fingers to plug the hole in Europe's bailout breach with every day
that passes! Note these two stories tonight from the website of the Wall
BRUSSELS—"Short on options and shorter on time, euro-zone finance ministers sought at a meeting here Monday to revitalize their sagging plans for a big bailout fund, even as the bloc's debt crisis reached new levels of panic in Italy.
"Ministers laid out two options for the fund Monday, and said they would present them soon to possible investors. They said talks on another option—to use the International Monetary Fund to provide greater assistance—were continuing, but gave little indication of progress.
"Europe's political and financial leaders are looking for ways to keep Greece's crisis from spiraling into other countries.
"The euro zone's most pressing task is to assemble a bailout fund with sufficient capacity to forestall a potentially lethal cutoff of market financing to Italy, whose government-bond yields are climbing rapidly"
"Europe's bailout fund is starting to look more like a lead life jacket than a credible defense against financial contagion. For all the talk by euro-zone leaders in October about boosting the European Financial Stability Facility's firepower to €1 trillion ($1.37 trillion), both the complex schemes proposed for maximizing its resources remain stuck on the drawing board. With the crisis deepening and no solution in sight, it is hardly surprising investors are losing confidence.
"Euro-zone ministers made little headway Monday in their attempts to put flesh on the bones of the two leverage schemes. The first plan was to offer investors insurance against the first 20% of losses on sovereign bonds. But it is becoming clear that the insurance would need to cover a much bigger loss to regain investor confidence; that will inevitably reduce the EFSF's firepower."
My thoughts: But stocks were up another 100 points today. There's no worry on Wall St.! Their reasoning escapes me! They're too busy having a Pollyanna Party to recognize that Europe and the global economy is once again on the brink. Even China's economy and especially the manufacturing sector are contracting now! There is no way that 2 collapsed governments (Italy and Greece) and two replaced Prime Ministers can fix a black hole of debt! But that news is precisely what sent stocks surging to fresh highs once again today. When reality finally sets in, there will be blood on Wall St as everyone rushes in a stampede for the exits. I'm sitting very close to the exit sign; I don't intend to be the last one out the door!
Note these excerpts from analysts at Barclay's tonight. Stunning candor:
1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
7) ...decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
13) ...frankly will have hand forced by market given massive systemic risk
from Business Insider moments ago:
It's just about over for Silvio Berlusconi.
Multiple news outlets are relaying information from Italy's President (Napolitano) that Silvio Berlusconi has informed him of his intent to resign after the latest budget is passed.
Stocks are rallying on the news.
Monday, November 7, 2011
After another week of confusion and turmoil in Europe, investors are ditching whatever hopes they once had for a conclusive solution to the debt crisis.
That may foreshadow a gloomy holiday season in markets, especially if wary investors opt to reduce risk in their portfolios and take refuge in US Treasuries and the dollar.
Just weeks after it seemed leaders had drafted a master plan to solve the crisis, doubts rose about whether Greece would back a 130 billion-euro bailout.
Disaster may have been averted when Greece, under fierce EU pressure, agreed over the weekend to form a new government that would approve the deal and stave off bankruptcy.
But that did little to calm investors, who were already looking ahead to the next problem: Italy. Italian bond yields hit a euro-era high of 6.4% Friday, raising fears the country may soon need a Greece-style emergency bailout.
The Greek agreement "may spark a brief relief rally," said Alan Ruskin, head of global G10 currency strategy at Deutsche Bank. "But it won't last and we will soon go back to focusing on Italy."
"At the end of the day, it does seem like a grand plan is elusive at best," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.
"We've seen one European bank and one US brokerage fail. We know there are strains for French banks. We're wondering how long it will be before Greek default worries spread to Italy and Spain," he said. "In a situation like that, money managers are going to decide to simply take their risk down."
Flight to safety
Investors are betting the market will see evidence of that as soon as this week, as flight-to-safety flows help boost US Treasury debt, lift the dollar against the euro and weigh on stock markets around the world.
The biggest fear is that a disorderly default in Greece or elsewhere would ripple across the global financial market the same way the Lehman Brothers collapse did in 2008. That, investors fear, would probably be enough to plunge the global economy into recession.
"This is going to be pretty negative news for risk markets," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "We are going to see a continued flight-to-quality tomorrow."
Benchmark US 10-year note yields dropped more than 29 basis points in the past week and a half as worries about Europe overshadowed signs of economic improvement in America.
Ashraf Laidi, CEO of Intermarket Strategy in London, said he expected the euro to struggle again this week after losing nearly 3% against the dollar last week. By year end, he said it could fall below $1.30. It was around $1.38 Friday.
"This past week really raised some tricky questions," he said. "For the first time I can remember, the possibility that Greece really could leave the Eurozone was being talked about in cafes and bars as well as on trading desks."
The weekend deal in Greece may stabilize things a bit in that it suggests Greece will keep the emergency funds flowing while making the tough spending cuts needed to get its fiscal house in order.
"What we had been afraid of was a stalemate. Now it seems the hard cuts will be made. I think equity markets will cheer this," said Michael Yoshikami, president and chief investment officer at YCMNET Advisors in Walnut Creek, California.
The cheering may not last long, though.
"These 24-hour risk-on rallies, I don't know how much longer people are going to be willing to do that," said Ader. "Sell-offs are getting deeper because the rallies are only short-covering moves. People are not getting long and putting on bets that everything is suddenly OK."
From Greece to Italy
Deutsche Bank's Ruskin said the focus is likely to shift quickly from Greece to Italy in the weeks ahead, and that should mean more volatility and unwillingness to take on risk.
Italy's debt-to-output ratio stands at 120%, second only to Greece in the 17-country Eurozone, and its borrowing costs are rising.
Prime Minister Silvio Berlusconi recently refused a loan offer by the International Monetary Fund and his government may be on the verge of collapse.
"Berlusconi says Italians are not feeling the crisis but that's because the European Central Bank has been providing high levels of liquidity at low interest rates and buying Italian bonds," Ruskin said. "That begs the question, should the ECB stop that to show them this is really a crisis?"
"I have to believe a lot of investors like me are thinking this could be the start of Italy week," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "Italy is going to rapidly rise on investor radar screens and may be the bigger story."