ANOTHER VOLATILE DAY AND WEEK AHEAD

Maybe we should just call it another month or quarter. What initially seemed like bullish news with G-Pap agreeing to step down in exchange for a unity government in Greece was quickly glossed over and attention focussed squarely on Italy this weekend with the market wanting to see Berlsculoni step down, why?

Here is Berlsculoni at the G-20 summit

Other then the beautiful blue background, the other thing of note is he is sleeping and had to be awaken several times just as Italy was being discussed. Furthermore he refuted rumors of his stepping aside this morning via no other news source then his TWITTER account! Obviously from the ECB's communique this weekend, most feel he is not up to the task and whether he steps down or is forced out will create a lot of volatility in the markets this week. Italian 10 year note yields were hitting all time highs this morning of 6.6%, close to the levels that brought down other PIIGS. Despite Draghi's weekend warning to stop buying Italian bonds if the government in effect, "won't help itself", apparently since stepping in to the role of head of the ECB, he has doubled purchases of Italian bonds, yet they still are hitting all time high, making Europe's 3rd largest economy the domino that could pull the entire house down.

Jefferies which has released their European sovereign debt holdings several times over the last week to show there are no problems and they are not the next MF Global, somehow managed to dump nearly 50% of them since the close on Friday, this really has the feel of the 2008 era when banks said they had no more subprime exposure, just to write it down again over the next 4 quarters or until they were taken over by the government.

As for volatility in the commodities space, the MF global accounts that have been transferred to smaller to midsize brokers have been transferred with ZERO capital allocation, it appears only CME got money, so if you were a MF Global customer, you got a margin call today for the full amount, if it is not met by the EOD today, accounts are liquidated, while all CME customers enjoy a 30% discount on margins across the board on any new positions, it's like a tug of war and should lead to, well who really knows what. It's odd that the smaller brokers with less resources to issue margin calls and liquidate accounts got zilch in margin money from the MF Global trust, but I guess it's good to be the king or CME.

So it looks to be another week in which trade is dominated by rumors, rebuttals and confidence votes.

Yet as the Wall Street Journal pointed out today, Merkozy made a huge mistake in saying at the G-20 that any country is free to leave. That puts unlimited risk on Euro bonds and likely will do nothing to attract investors in to the EFSF fund, which even the Germans will not pledge their gold as collateral. 6 weeks ago they said they would do anything to save the Euro, now, not so much.

Volatility may abound, but the end of the story seems pretty clear.