Morning Wrap

*First, I have reports that Google Groups is working again and some members have emailed me that they ARE receiving email updates, hopefully that is over.

I hope you were able to rad Sunday's post, "Sorting the Noise From the Trend"  thus far it has been absolutely right on track and ahead of very fast moving events, it's not just a round up of news, but an collection of the very important data that separates what is important, what is not, what is likely and what will change the game.


For instance, Monti in Italy is having a very hard time forming his coalition government, which is exactly the issue tackled and raises the specter of the worst possible political outcome for Italy, early elections which likely won't be held until early spring 2012 and Italy simply CANNOT survive that much uncertainty for that long, they have weeks at most. Today is apparently the "final" day of negotiations which are not going well, Sunday's post covered some of the main reasons they may not go well. 


As a result, the EURO has fallen overnight, but more worrisome is the fact that on this news, Italian 10 year yields peaked this morning over the threshold of 7% before the ECB stepped in buying to bring them slightly under 7%,(6.996%) they may be back above 7% now as ECB interventions have had a very short half life.


Also in the article, the "true gauge of risk in Europe", French yields as THEY ARE NOT eligible for ECB intervention, they are the one place investors can look for real price discovery and this morning, they hit a new high at 3.49%, over 175 basis points over German Bunds.


In the post I also covered the long ago forgotten Spain and how they would soon re-emerge as a central problem, that happened just this morning, only 2 days after the post when they conducted an auction of $3.5 billion in bills, which failed and came in undersubscribed at $3.2 billion, with the yield coming in at 5.02% which is much higher then the last auction at 3.61 and sent their 2 and 10 year spreads compared to Germany's to new all time highs, contagion is once again a theme in Spain. The biggie, these were only 12 and 18 month bills!


Also covered in Sunday's post was the act that the EFSF is an abysmal failure, it is no longer even a semi-serious option, that means all eyes are on the ECB (European Central Bank), which I also covered as being implicitly AGAINST bailing out nations, further confirmation of that came today as ECB member, Yves Mersch echoed comments just this morning, the same as his German counterpart over the weekend in saying,


"monetizing government debts "is tantamount to inflation" and "not feasible." To use inflation to lower the fiscal burden "would reduce incentives for governments" to tackle their debt burdens and "would raise the risks of even higher future inflation and greater output volatility. Uncontrollable wage-price spirals would be likely." Mersch said in a speech in Frankfurt today. He also added that you can not make the ECB as a "lender of last resort for governments" and that governments must live up to own responsibilities"


So as I pointed out Sunday, all eyes will turn to the ECB and thus far the ECB is saying NO.


The stock market opened lower because of all that is going on in Europe, but saw a brief lift, not from the generally better then expected US economic data, but from F_E_D_ dissenter, Evans as he said this morning that ZIRP (Zero Interest Rate Policies) would continue beyond mid 2013, something the F_E_D itself has NOT said even in the most recent F_O_M_C release. That goosed the market a bit, but it looks like all eyes will be back on Europe momentarily as Italian yields are one again breaking north of 7% again, as I pointed out just momentarily ago, the ECB interventions have a very short half life and the money they spent in the secondary markets to bring down Italian rates is already wasted and at a loss.


At this point, Italy's new PM, Monti and his efforts to put together a ruling coalition with deadline for the talks TODAY, as yesterday they didn't go well and if you read Sunday's post, you would understand why they were not likely to go well, will be the focus of the rest of the day.