May 15th, 2012
in Gary's blogging
The cage has been opened and the bears are roaming freely. Indexes and equity markets alike have moved lower over the past few sessions. They have fallen below important channels and 100 moving day averages spelling out a dismal recovery solution if indeed there is one in the near term. The influence of the Eurozone's economic woes continue to press on the US equity markets negating any good news. These political and economic unrest and turmoil both here and abroad will continue to weigh heavily on the markets in the days ahead looking for solutions to which there are none to be found.
Greece and France recently elected socialistic governments promising to throw out austerity measures and establish more government spending. This Keynesian thinking only compounds the World markets resolve in remaining positive and to shake off the negative news. This in turn will move the markets even further down as investors look for safer ground as the bears have their way with Mr. market. Follow up:
The ever increasing of negative signs hindering a prospering market to move ahead are numerous and need to be watched, if not already signaling the last gasp in a failing recovery. The gold and silver prices are descending and have shown no signs of stabilization. Oil is also falling at a rapid rate, even with the Middle East tensions abound and the markets are not rising. Lower oil prices and commodities are a mixed blessing since it benefits consumers but is also a sign of serious trouble for the global economy as demand falls. When gold also falls against a falling market only confirms what we have suspected; a weakening World economy.
Today's financial spotlight falls on Greece. The Greek president recently said that “€700 were withdrawn from banks by Greeks since May 6 election”, reflecting further public erosion of a positive solution regarding Greece remaining in the EZ.
Peter Tchir thinks the market will have a very negative reaction to Greece leaving the EZ and returning to the Drachma in his article Here.
“But it is the ECB and the rest of Europe that needs to worry. Greece needs further debt cuts even more than it needs a new currency. . . .The ECB and IMF are both staring at massive losses. If Greece goes to the Drachma and doesn't change the debt to Drachma, then they will have killed themselves. So switching to drachma, and then possibly even defaulting is what is necessary.
How will the ECB and IMF deal with it? The ECB might have to make a capital call. That would send tremors through the system. There is talk about having the EFSF make the ECB whole. That's not even taking money from one pocket and shifting it to another - it's the same damn pocket. The market will not like that.”
“How surprising. Greece's plan to get citizens to pay property taxes by bundling them with electricity bills has failed, with the Public Power Corporation - itself bailed out last month - no longer trying to collect (even getting an ok from the finmin). Government (Troika) pencil-pushers had hoped the scheme would raise €1.7-2B in Q4 last year.”
The 10 year treasury yield is under 2% (1.84%) and continues to fall as more and more investors seek safer shelter and running for cover. Then we have the political indecisiveness in the US paralyzing any hope of a real recovery until after the elections. That prospect of an improving economy after the elections is also in question with the election outcome in doubt.
Also evident that the US markets have not priced in this factor of this uncertainty as long as the weekly and monthly government reports continue to show some recovery. In the opinion of many, the hope of positive government reports may falter in the coming weeks with negative news and the possibility of a worsening economic recovery.
We may see later on this summer a long over due negative market reaction only adding onto the already weak market we are experiencing now. Appears that even God has something to say by striking French President's Hollande's aircraft with lighting as he attempted to meet with Germany's Merkel. We understand he returned to Paris safely and boarded another aircraft so they could meet later today and form the Merde Duo.
The rest of the 2012 year is looking bleaker as each day goes by and I haven't gotten to China's increasingly barren financial aspects. I wouldn't bank on a robust summer rally until the bears can be rounded up and caged again.
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Written by Gary