If you didn't hear already, Black Friday was a 'smashing" success. I bought a new TV over the weekend and noticed that there were a ton of seemingly nice TVs for sale, all in boxes and not 1 on display. They were name brands and priced very cheap. Then I looked at the reviews, 2 of 5 stars, they were crap, but this is what people were buying.
In Europe, I talked to several people who aren't financially savvy or market savvy and the fear over there is palpable, you could literally see it on their faces (via Skype). I had a lot of questions like this, "What should we do to protect our assets?"
Well Friday the Greeks threw aside the
only thing that seemed to be a sure thing, the 40-50% bond holder
haircut, they have bypassed the bank negotiators and are talking
directly with the banks and are talking about a haircut that may look
more like 25% of the face value or a 75% haircut... The negotiating
entity, IIF has been bypassed completely!
This move would have significant side
effects, starting with the capital banks in the EU are required to
hold, it also makes the EU look like it has lost all control as
Greece seems to be handling their own affairs, I guess this is
exactly why the new G-Pap wouldn't sign the EU commitment letter,
which seemed strange at the time, now we know why.
As you already know Belgium lost their
Aaa by one notch from 2 rating's agencies.
There were a lot of rumors this
weekend, some addressed here and some new, however one of the more
significant is that the IMF may offer Italy between $400-$600 billion
Euros at 4-5% Interest, giving Italy up to 16 months to let reforms
take effect. The snag is still getting the US Congress to allow it,
while the market is excited, in an election year or any other, it
will be pretty hard to convince Congress to go along with this one.
So we'll have the knee jerk reaction and then the thought out one,
which may be a blessing for us.
The fast is becoming self-evident that
Italy is the last domino before the EU falls. Austria and France are
in danger of losing their Aaa and Germany, well you saw the results
of the Bund auction last week, increasingly Italy is the fulcrum,
that is if the bond vigilantes don't go after France next.
Remember in 2010 the IMF Board of
Governors voted to increase the fund from $357 to $750 billion
dollars, but, of the 187 counties that pay the quotas, only 17 have
signed on or passed the increase, the biggest donor, the US and many
others have yet to take up the issue, so it seems for now to be a nice
gesture, but like the EFSF, lacks the logistical firepower.
After last week's market performance,
it has become clear to the EU that everything that can be done, must
be done (rumors included), even as Ireland runs out of rescue money,
German Finance minister SCHAEUBLE
says
SCHAEUBLE
SAYS HE'S `CONFIDENT' 'EURO CAN BE SAVED
*SCHAEUBLE
SAYS EURO WILL BE `THE STABLE WORLD CURRENCY'
Interesting...
Well
it seems to have worked as the Euro and ES futures jumped, ES about
1%, however the risk basket in CONTEXT shows this to be an equity
only move, we'll have more information when the market opens and we
look at out own credit indicators, but this may just be the perfect
bounce we have been looking for, all equity and rumor and no
substance/no credit risk on.
Since
we have had rumors that the Greek Drachma may be re-introduced, there
were also rumors of Germany issuing their former Deutsche mark over
the weekend as well, if there's any truth to any of this, it seems
that it would point to resignation that the Euro and perhaps the EU
have actually failed, only the death certificate hasn't been issued
yet. Either way, it seems eventually that is the inevitable outcome,
however it does remind me of SCHAEUBLE'S earlier statement and how it
is probably fairly disingenuous, but after last week, they need
whatever they can get to stop the bleeding.
It's
ironic that we see the market “appearing” so strong right now
when all indications point to this unravelling faster and more
disorganized then anyone could predict. Like I said, once you hit the
point of no return, markets move very fast, it seems we may have been
at the P.O.N.R. For a while now.
Oh,
and just for good measure, sanctions have been imposed on Syria by
the Arab League, if we follow the Libyan template, a no fly-zone is
next. I already commented on the naval (Russian/US) situation from
late last week, but now Iran says they will attack NATO member
Turkey's missiles if “provoked”.
I
thought last week would be volatile and interesting, I think I was a
week off.
FX EUR/USD Sunday night open
A wider view with the open in black
The ES open with a 3C negative divergence right now, volume is quite low for this kind of a move, it may be just what we were looking for to set up new positions or add to existing, especially if credit remains weak as it has thus far via the CONTEXT model.
As you can see, ES (the S&P futures) are WAY ahead of the risk basket, indicating that equities are alone on this move, which makes it, thus far, a move with little underlying support from other risk assets such as credit. Of course the 3 a.m. open of Europe could change everything.
