Wednesday, November 23, 2011

I won't be an "I told you so" because my job is to just that as best as I can. I keep coming back to an article maybe 3 weekends ago or so about how you know when things start slipping down the slope to the point of no return and enter a bear market. For about a month or so I've been saying, "This feels like the bear in 2008" because I traded full time for a living through that market.

Guess what? Here we are again. The difference is the first time we started from a stronger position (such as employment, housing values, etc) and this time from a much weaker one, that's why yesterday's 20% downward revision in advance Q3 GDP was not a good sign.

Furthermore, yesterday we get news after market of the Fed's plans for new US bank stress tests using some late 2008 criteria. They'll be testing 6 of the largest banks, the TBTF's and they are conducting this test now for VERY obvious reasons, I truly don't remember the last US stress test. Remember before the last FOMC meeting I said, "The Fed isn't changing any policy until they figure out where the money is most needed".

Things didn't get any better overnight and into the EU open.

The Belgium bank Dexia, that was collapsing until a French, Belgium, Luxembourg led bailout calmed market fears, was raised as an issue by the EU commission who now believes each countries' respective share of the bailout may not be feasible given the deterioration in the market, once again raising fears Dexia blows up. The Commission won't say much more, so the market will not react well to that uncertainty.

The Dexia debacle is firmly tied to French downgrade probabilities due to their exposure.

As I have been showing, commodities have been underperforming for months and it hints that something is wrong in China, well Chinese PMI released last night confirms it. PMI dropped from 51 to 48 as well as a 32 month low! As a reminder, readings in PMI below 50 signal contraction, so the commodity weakness was certainly tied to China and chances of a hard landing go up significantly.

Now for the news that I think we all knew was coming...

Germany auctions off $6 billion in 10 year bunds, they sell only $3.644 billion and this from the strongest country in Europe!

Reuters quotes sum it up best:


"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London.

"This does not bode well, it is the worst of uncovered auctions that we've had this year and little wonder that the Bund sold off on the back of it."

German Bund futures, the euro and European stocks fell after the announcement of the auction results.



The next thing to come will be an all out attack on the German yields, then... Game Over.


This is what happens as the world enters recession, everything above, but there's more.


As if the above was not proof positive that the core has now piked up the contagion bug, that every EU plan was supposed to halt and failed, now we have this from Fitch Rating's Agency:



  • FITCH: FRANCE CAN'T ABSORB MORE SHOCKS WITHOUT UNDERMINING AAA
  • FITCH: FRENCH AAA WOULD BE AT RISK IF CRISIS INTENSIFIES
  • FITCH: ADDED MEASURES LIKELY NEEDED FOR FRANCE '13 DEFICIT GOAL
  • FITCH PROJECTS FRANCE DEFICIT IN '13 ABOUT 4% OF GDP


"Similar to the situation of other major ‘AAA’ sovereigns, the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their ’AAA’ status. The principal concern with respect to France is that the intensification of the eurozone crisis will generate contingent liabilities that will be crystallised onto the sovereign balance sheet."


On the Fringe, the ECB/Merkel warn Greece that the next tranche of aid will not be sent to Greece until they back up their promises in writing, something I told you that the new G-Pap refuses to do.

So, that is just what has happened overnight. Six months ago this would have been 6 months worth of news. This is why I tell you that we are either near or at the point of no return.

This is why 3C has looked so bad since mid October, you didn't think all this selling would just happen in a week?

And this is why I have not hanged anything in the model portfolio and remain completely short.








No comments: