My Crystal Ball is Working!

I may have to give up on the market and join the circus, set up a little booth with a crystal (or glass) ball and charge $5 per sitting.

On a more serious note, this isn't a victory lap, this is my way of pointing out something I think is important. I'm no fan of company specific fundamental data, but I am a huge advocate of understanding the principle, concepts and trends in economic fundamentals. There's a fine line that I try to observe between having too much news on the site which you can get on your own and having the right news that gives you insights in to the market by way of understanding the fundamentals of the world economy.

I don't think we have to be experts and know the 2018 projected debt to GDP for Belgium, but understanding the macro trends can only help you in understanding the market, understanding the extent to which something is important and understanding certain things, for example, the EU banking sector's capital shortfall and how Euro repatriation effects the EUR/USD pair and how that gave the market some breathing room to move to the upside, but still understanding that the catalyst behind the short term strength is rooted in EU bank problems, VERY BIG ones.

So in this post, "Wrap Up For Monday" posted April 24th (Monday-2 days ago), I covered a lot of topics, but this is what I want to point out to justify the usefulness of the news and analysis of that news presented here.

From the post,

"OK, so the market today, in one word, "Europe". Europe was quiet for too long in the beginning of the year. Most of you probably remember me saying a month or so ago, "Europe will once again be the market focus very soon", today was a great example of that. "


"As you might know, the Dutch cabinet resigned en masse today after failing to reduce their budget to the EU mandates. PREDICTION: Get ready for more sovereign downgrades and then the government raiding the offices of S&P, Fitch and the other ratings agencies that downgraded them."


I wasn't being facetious or spewing hyperbole, I meant what I said, thus the capital letters on the word, "PREDICTION".


Even I'm shocked at the timing of this update and the news tonight from the S&P Ratings agency and you know how much I've been talking about Spain lately...


From the S&P:


"NEW YORK (Standard & Poor's) April 26, 2012--Standard & Poor's Ratings Services today said it lowered its long-term sovereign credit rating on the Kingdom of Spain to 'BBB+' from 'A'. At the same time, we lowered the short-term sovereign credit rating to 'A-2' from 'A-1'. The outlook on the long-term rating is negative."


And there you have it. Now watch Spanish (and every other EU sovereign except maybe Germany) yields explode to the upside through 6% and probably 7%. This makes it a whole lot harder for Spain to go to the market to raise finds through debt issuance and when that happens they have no other choice than to try to raise capital the good ole European way, through bailouts. The convergence of Black Swans is staggering. Just today we learned that the ESM bailout mechanism, the one Spain will probably soon try to tap (although it is not nearly big enough even with the EFSF running in tandem to help Spain and deal with the fallout across the EU), may be used to fund EU banks that have huge holes where there should be capital and they have run out of options for raising capital, otherwise the incredibly desperate idea of funding EU banks through their soveirgn debt firewall, the ESM, would have never been proposed.


The plot thickens and the market-well you know what I think about that.