Early Update

As the saying goes, "Truth is true" and the truth is, the Spanish elections changed NOTHING for the contagion tearing away at Spain.

3 a.m. EDT when Europe opens is the "Magic hour", never before have I seen a market so preoccupied with Europe, I didn't even know or care what time Europe opened, but now it sets the tome for the open , sometimes the day and certainly the trend.

Spain holds its first bond/debt auction after the elections and as I have been preaching in "news that matters and news that is simply a sugar high distraction for the robots and momentum chasers", true to form, the Spanish elections didn't move the market one bit because the bigger issue is the solvency of Spain which will disappear a lot faster then years of austerity measures will take to make even the slightest of changes. What has me wondering is the ECB's insistence that it is up to the individual countries to solve their problems (austerity) not the ECB when the ECB knows as we all do that they will default long before then and why does the ECB bother supporting the bonds of these failing countries in the secondary market? It seems like they are buying time for something and I suspect that revolves around German plans which may be to create a new, smaller union or exit it altogether.

As to the Spanish auction, to point out how badly things went down hill (remember it was two weekends ago I said Spain will be back in the limelight soon and this after hearing nothing about Spain for 3 months, the next day they were in focus), today they auctioned off 3 month and 6 month bills (ultra short maturities) and paid a hefty price. The $3 billion euro auction of 3 month bills came in at a yield of 5.11% vs a yield of 2.29% one month earlier, the yield or interest they have to pay on the borrowed money more then doubled in a month!  The 6 month jumped to 5.227% from 3.3% at the last auction!

Furthermore in a sign of desperation and deceit, the 10 year Spanish yield strangely dropped by 35 basis points Friday, seemingly showing improvement and leaving many bond traders wondering what happened; perhaps the elections? Well it would be a perfect time to pull the trick they pulled, they asked data vendors such as Bloomberg and Thompson Reuters to from the new 10-year bond introduced last Thursday to an older one!

In another sign of trouble for Spain, its yield curve has inverted the most since 1994 (an inverted yield curve has long been equated with a recessionary economy).  would think the ECB is busy buying 2 and 10 year Spanish debt today, because, if Europe closes where the curve is right now, it will be the first close of a Spanish inverted curve since 1994 and that will make the trouble Spain is facing now, much worse and likely send their 10 year debt in to the 7% or point of no return/ "We need a bailout!". Too bad there's no money for a bailout unless the ECB prints.

Signs of escalation of contagion of the core hit straight at the heart of the EU today as Germany's Commerzbank was taken to the woodshed in European trade, down almost 9% as the market finds out that they are undercapitalized by $5 billion Euros and as they have already turned to the government one, talk is they may fail and/or be nationalized by Germany and don't forget Germany's other major bank, Deutshce Bank, they have an even greater capital short fall!

How Germany responds over the coming days and weeks should tell us a lot more about what the EU will look like shortly-smaller or less one Germany?

It is no surprise, but the egg that hatched the contagion in EU, Greece, is now seeing their bonds hit new lows, meaning rates hitting new highs.

As you know, contagion has spread to France, but it is also now effecting Belgium. Hungary, one of my favorite European countries (where the Ottoman Empire architecture meets western European and undoubtedly one of the most efficient public transportation systems in the world as well as amazing thermals and original centuries old Turkish baths), has gone back to the MF for help, meaning they are likely to be downgraded to JUNK status, which causes a huge problem for the hugely exposed Austrian government and banks, which now also faces losing their AAa rating. I already pointed out the deception at their mega bank ERSTE (of which I am still a card carrying member), that appears to have just been the tip of the iceberg. In a bid to stem the tide, the Austrian central bank has FORBIDDEN any Eastern European loan issuance (read Hungary). So now both Belgian and Austrian bonds are being targeted by the bond vigilantes and the ECB is now juggling Greece, Spain, Italy, Ireland, Portugal, Austria and Belgium and perhaps, soon to be France.

Here in the US, things aren't much better this morning, the Q3 GDP revision came in at 2.0 on expectations of 2.5% or as much as 20% off! This is no small number when it comes to something as important as GDP! One of the measures of the revision of advance Q3 GDP that stuck out in my mind as we are days away from Black Friday and the seasonal Santa Rally, was the fact that the much touted consumer spending, which was partly hailed as the reason for a stronger GDP, actually fell in the revision. We know that since the first Q3 GDP print that there have been signs of consumers having less money or disposable income, the revision makes clear that they weren't as strong as initially thought, which means the numbers as they come in for Black Friday could be a big disappointment.

The other thing that stood out and was largely blamed for the miss was private inventories, which were revised down from -1.08 to -1.55, again it may sound like small miss, but is is nearly a 30% revision! The Q4 hopes have been pinned on inventory restocking. With Personal Consumption coming in at a miss, it makes restocking much less likely, in fact, it makes liquidations more likely, and with that, the hopes for Q4 GDP are rapidly vanishing as well as the seasonal Santa Claus Rally.

Interesting start