Friday, November 26, 2010

Nonstop Global News Events Distract from Normal U.S. Holiday Market Cheer

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Normally this is a quiet happy week for the domestic markets, but the news flow overseas has been non stop.  First Ireland, than North Korea, and now it appears there are discussions (of course denied) that the EU wants to front run the bond vigilantes and convince Portugal it needs a rescue asap. [Nov 19, 2010: Once Ireland Gets Its Bailout, Let us Prepare for the Portugal Bailout - Never Hurts to Start Early]
  • The Financial Times Deutschland newspaper reported Friday that euro-zone nations are leaning on Portugal to seek aid in order to prevent the much larger economy of Spain from having to do the same.
Of course we know the game plan of these countries from Dubai, to Greece, to Ireland .... it is the same game plan of the U.S. banks (think Bear, Lehman, Merrill, Washington Mutual) or the GSEs (think Hank Paulson's bazooka):  "deny, deny, deny".  Until it course you can deny no longer... than accept the bailout (ex-Lehman)
  • Portugal's finance minister said the country is rejecting the idea floated by some fellow European Union countries that it should take a bailout to keep the debt crisis from spreading.
Replace the word Portugal with Ireland and change Nov 25th to Oct 25th.  Rinse. Wash. Repeat.

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Once more let me emphasize NOTHING is being solved other than kicking the can down the road.  The debt is still there; it is just being moved from one shell to another (just as in the U.S.).  The lack of ability to pay back that debt is still there.  Until *SOMEONE* takes a haircut in the creditor class, the problems ensue - they just get swept under the rug via David Copperfield magic, as we sing kumbaya.  

Of course the end game here is Spain.  (whose market is down roughly 2.6%)   Ironically, the country is supposed to be offering a large proportion of the "bailout" funds the Europeans came up with 6 months ago to protect the 'weak sisters'.
  • “Markets are trying to push Portugal under the umbrella of the fund in order to relieve pressure on Spain” said Heino Ruland, strategist at Ruland Research. “The problem is that the more countries are part of the fund, the fewer are contributing to it. If Greece, Ireland, Portugal and Spain are all eventually under its protection, the contribution from Germany, France and Italy would skyrocket. Italy couldn’t handle it,” he added.

Since debt holders are no longer allowed to take the pain (most of the debt holders being European banks.... ) we have to keep asking the German people to keep writing checks, one country at a time.  (the finances of Italy and France are not exactly 'good')  The greatest irony of all is if each of these countries were independent of the EU they could simply print money, devalue their currency, ruin their savers and there would be no crisis - it's working like a charm for the U.S.

Errr....
  • In a radio interview on Friday, Spanish Prime Minister Jose Luis Rodriguez Zapatero absolutely discarded the idea that Spain needs a rescue plan.
Did I mention rinse, wash, repeat?

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As for the U.S. market we clearly are in a 30 point range here between the 50 day moving average on the bottom and S&P 1200 at the top as of the past 2 weeks.  More broadly a range of the 50 day moving average on the bottom and yearly highs at 1225 on the top... but we've condensed that in the smaller range for now.  Buying the bottom of this 30 point range and selling the top has been the way to go the past week and a half.   It continues to look to me like we are forming a right shoulder in the head and shoulders formation, which should lead to an eventual break of the 50 day moving average and further downside... but days like Wednesday don't make it easy on anyone.



Huge news flow next week with China PMI, U.S monthly employment (which I expect to do well during the holiday season as a mass of temporary hires moves into the malls), and US ISM figures.  Oh yes, and various bailouts.

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