Items of importance

I'm preparing a post as ES stays negative and rather lateral. I said earlier that it is too early in my opinion for the markets to move to losses or lose ground and sustain that throughout the rest of the day, but a lateral trend with a negative divergence is a much better solution. All averages are lateral now and have been since about noon time. In the meantime while I'm looking through some of the leading indicators, here are a few items of importance in the macro economic trend.

I've been following the market today and have had little time to catch up with the fundamental macro-economic situation. Several weeks what seems like months of queit on the European front, I warned that the EU problems were about to re-emerge front and center.

There are several places where this is happeneing, first the blowout in PIIGS 10 year yields we saw last week, most above 5% and heading toward 6% where debt is considered unsustainable and where each of the PIIGS that have sought bailouts did so, right at the 6% 10 year yield. So LTRO 1/2 from the ECB has run it's course, it's half life reduced and the effect now over as PIIGS yields widened in a huge way last week.

Spain is of primary concern as the ESM/EFSF bailout mechanisms running in tandem from this weekend's EU Finance Minister meeting, leaves, as Shaueble himself was quoted, $500 bn left to deal with the next emergency, hardly a firewall and likely not even close to contain problems in Spain should the current yield trajectory keep up.

Thought Greece was fixed, the bondholder swap complete? Think again. As has been noted probably 100 times on these pages, the primary problem for Greece has been the Greek law bonds that offer little in the way of bondholder protections and the UK Greek bonds that fall under UK law, which hold significantly more protections for bondholders. Hedge Funds bought up these UK law bonds at a discount looking to recover full par as they take Greece to court.

From Bloomberg:

Investors in Greek bonds issued under foreign law rejected the nation’s attempts to restructure the debt at talks last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum, according to a press release today from the Greek Public Debt Management Office.

The meetings involved holders of about $26.8 billion of foreign-law notes denominated in dollars, euros, Swiss francs and yen. Investors owning $15.3 billion of securities agreed to a restructuring, leaving $11.5 billion still to be dealt with.

Greece’s options include opening talks with holdouts to reach a mutually acceptable compromise, paying up in full or refusing to pay at all, according to London-based Costerg.

“Paying up in full would raise the issue of fairness regarding the domestic-law bondholders, while a hard default would make litigation likely,” said Costerg. “The bottom line is that this reminds investors that the Greek crisis and the euro-area crisis aren’t over.”




Last week Mark Grant gave us the TRUE debt to GDP figures for Spain which I published.


The bottom line was the official debt to GDP for Spain at 68.5% vs what a little due diligence revealed, a true number nearly double that at 133.8% and to think the gaol is to get Greece to 120% in the next 10 years or so! SPAIN IS a problem.

Mark Follows up this week with France's TRUE Debt to GDP and finds the 86.1% is way off the mark as the EU has used various accounting gimmicks, the real number... 146%! So much for the worry of contagion of the core....

Last week as the European markets came undone, I mentioned that they would bounce as they hit support... Here's the EURO Top 100 Index...

It hit support last Thursday and Friday put in a bullish reversal Harami and closed up today. This is no more then simple technical trade, it is not reflective of the fundamentals which are deteriorating badly.

Despite the bounce in Europe today, sovereign debt continued to be weak as did EU credit markets, this was an equity only rally. Spain, Italy and Portugal were the notable underperformers in European sovereign debt today, the key word being SPAIN and that being the problem in Europe that they aren't prepared to even look like they are prepared to handle.

Finally, last Monday the market was in some trouble and only saw strength after Bernie made some ambiguous "easing" comments that JPM already debunked. Last week we saw Plosser contradicting what it "seemed" Bernie was implying, although as we covered in what he said and JPM's chief financial analyst said, "accommodative policy" would still be in place with the end of Twist, so Bernie's comments were just ambiguous enough to move the market after the first week of red in the market all year, but allowed enough room for "plausible deniability".

Plosser followed up last week and threw a wet rag on the QE hopium crowd.

This week it is Fisher's turn...
As Bloomberg noted, Fisher said the 2014 pledge to keep rates low will need to be adjusted, he also said the economy is improving (the economic data would not suggest this is true, however for the purpose of the QE crowd, this was not good news from  F_E_D president. He also said, the f_E_D should take a SIT, WAIT AND WATCH' ON POLICY and that the F_E_D has DONE ENOUGH on the easing front. All contradictory to Bernie's statements, in line with Plosser and not a happy moment for those looking for QE 3.