Midday market Commentary For 06-27-2012
Bailouts are equivalent to putting gas into a car necessitating the ability to move about and continue forward. But consider for a moment, if the tires are flat then they need to be fixed before anything else can move onward. Right now the motor is running in the southern EU states, sucking up petrol** , operating the air conditioning, but they are not going anywhere. It seems there isn’t anyone willing to get their hands dirty and fix the damn tires. So the PIGS continue to sit on their asses content, comfortable, sipping fine wines and asking the other EU members if they could repair the deflated tires too.
Maybe I exaggerate a bit with some sarcasm thrown in, but the ECB bailouts are only stalling the inevitable disaster that awaits the Euro as we now know it. The southern EU membership is known for being lazy, slow and contemptuous of anyone telling them how to go about their business. PIGS is a good acronym for those nations that persist wallowing in their self made mucked up pond of sorrow. Maybe we should add Socialistic France to the mix and call it PFIGS, with a silent ‘p’. France is also determined to fail financially with implementing unsustainable socialistic programs with the new President Hollende at the helm. Talk about a sinking ship, they are about to go to hell in a hand basket as well, kiss the EURO goodby .
Seriously, I do not see anyway out of this Euro mess. I see a great disconnect between the EU members and Germany and much infighting within the individual states as well. Germany, who holds ALL the cards, is making unpopular demands themselves and it isn’t going to get better anytime soon.
The markets at noon.
WTI oil is at 80.46 trading between 78.68 and 80.75 and the bias is neutral.
Brent crude is at 93.58 trading between 91.75 and 93.84 and the bias is neutral.
Gold is down today at 1574, trading between 1581 and 1555 with a negative bias.
Dr. Copper is at 3.35 up from 3.31 earlier.
The DOW is at 12631 up 98 or 0.79%.
The 500 is at 1333 up 13.37 or 1.01%.
The $RUT is at 775 up 10.37 or 1.35%.
SPY is at 133 up 1.31 or 0.99%.
The trend is up and the current bias is up under very low volume.
“Europe faces three systemic risks: Sovereign (GRExit vs. GERxit), Liquidity (unsustainable refinance rates and foreign capital outflows), and Banking (insolvency and under-capitalization).
All of these can fundamentally be traced back to an era of excessive over-indebtedness, which as Pictet notes, leads to required deflationary policy responses that are incompatible with developed market government targets (of re-election, Keynesian pro-growth fiscal policy, and satisfying financial market’s expectations).
While LTRO did indeed address liquidity risk in the very short-term, it is now painfully clear (just look at European bank stock prices) that financials are driven by sovereign risk (not so much liquidity risk) at the margin.
The following three charts provide a roadmap to Nirvana or Samsara (hell). With the Summit underway, Pictet’s path to catastrophe roadmap (tactical and strategic) is critical to comprehend.”
** with ‘Delusionol Alcohol’ additive.
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Written by Gary