Starting the Week

I guess we'll start with European contagion, Italy just saw its outlook lowered to negative by the S&P ratings agency. While Italy faces enormous fiscal burdens, much of the burden is past debt. With the ratings downgrade, borrowing in the open market is going to get more expensive for Italy. As far as the PIIGS scenario goes, Greece, Ireland and Portugal were expected to fall and just about in that order. The bigger problems are Spain and Italy. The current bailout mechanism cannot handle Spain, much less Italy.   You may recall the S&P also downgraded Greek debt last week. A Greek default is looking like a sure thing, timing is the issue and if there ever was a domino effect of "what ifs" to be contemplated, a Greek default would be the fuse that brought Europe down. Whether it starts in 2 months, which is about the current schedule for a Greek default or whether they manage to kick the can down the road a bit longer, start looking into those European Banks, even with little exposure to Greece, the domino effect will take them down, probably the ECB as well.

As I mentioned in several different post on different Euro topics, the friendly, "We're all one" atmosphere is falling apart quickly which leaves Euro banks a prime target. DB was one of my picks from last week, it's already taken a hit, but nothing like we can expect. To make matters worse, the austerity measures that are required in bailout terms are creating rage on the streets, you probably read about Spain this week and Greece just about every week. Voters throughout Europe are voting against either bailouts or austerity measures, look to the Spanish elections this week for the later and the German for the former. All in all, not a good mix for the future of bailouts and defaults.

In the short term, the Icelandic volcanic eruption should reach Europe this week, we'll have to what effect it has on the economy, but I think it won't be a good week for the Euro, which means the Dollar may have a good week and all of those inverse correlations will come home to roost, right about on schedule with the thinking I've had with regard to the market's trajectory regarding this triangle we've been watching. In fact the FX open is seeing the Euro continue the downtrend started around May 5th. $1.40 continues to be the level to watch.

Here at home some of the most interesting news and it'll be interesting to see how this plays out (recall the Liberty Dollar story), Utah has made gold and silver "legal tender". Look for the Feds/Fed to try t stomp that flame out real quick lest it spread to other states and leave the Fed with a bunch of worthless green colored cotton denominated holdings.

As for the market, at last check the Dow futures were down around 36 points. Asian markets are down in the early going on Greek default concerns,  I'll be very interested in the underlying tone of any gap down in the a.m.

I've just about completed my scan for market trends that I posted this week, except it'll be looking at the shorter term expectancy from 31 days to the 10 day expectancy vs reality.

Have a great week, see you in the a.m.