Euro Chiefs May Offer Leniency to Greece - Bloomberg
Guess who’s blinking? No, not Greece. The key remains on whether a “oligarchic, pansy, pro-austerity, and illegitimate government” can be stitched together in the coming days.
Wolfgang Münchau: "Only days to avoid collapse" of eurozone, Currency Market prepares for breakup
Bad news to open the week, however, U.S.futures are sharply higher.
I’ll be keeping an eye on the Eur/Usd to see how risk sentiment performs overnight. As I stated here, we’re in a situation where bearishness is quite high and plans are being made for a Eurozone break up. Therefore the market may move quickly upward as shorts cover after a 7+% fall on any potentially doable solution.
In the end, the Eurozone will not survive in its current form and we are at a critical moment. Does it happen now, or later on is the question.
See 3 posts down for another post on the Eurozone.
Weekly Bull/Bear Recap: September 19-23, 2011
Bull
+ The Conference Board reported that the economy will continue to grow for the rest of the year. The company’s Leading Indicators Index posted a 0.3% gain in August vs. expectations for a 0.1% gain, while July was revised upward. The American Association of Railroads reports that railroad shipments just hit their highest levels in 3 years. Certainly these indicators aren’t pointing to recession.
+ The BuildFax Residential Remodeling Index just hit a new high in July. Increased permits point to increasing demand for home improvement. While the housing market may be struggling, this index points to increasing activity under the hood. Additionally, the AIA Architectural Billings Index unexpectedly rose above the 50 mark in August, and points to increasing design and construction activity for commercial real estate projects in the months ahead.
+ In a sign of confidence in the future, United Technologies just executed the largest all-cash industrial deal ever with its purchase of aircraft-component maker Goodrich. The rise of China will certainly unleash massive demand, which will fuel economies around the world. The time to buy long-term companies who stand to benefit from this paradigm shift is now. (I hold no position these companies)
+ While China’s flash PMI came in somewhat weak, it’s important to point out that it hasn’t fallen out of bed by any means. Their economy has withstood Eurozone woes and slowing U.S. economic growth. Export dependency has declined. Moreover, the Conference Board also published its Leading and Coincident Indicators for China. The results did not disappoint and are collectively another nail in the coffin of the hard-landing thesis of the bears. Couple that with the fact that inflation has peaked, marking an end to the tightening cycle, and you have a scenario where investors are likely to be surprised in the coming months. China will continue to provide end-demand for the global economy.
+ While the probability of Greece defaulting remains elevated, it would be an orderly default if it did happen. The country will remain with the Euro. ”Concerns over the risk of a break-up of the euro zone are greatly exaggerated.” The ECB will continue to intervene to ensure liquidity and lower bond yields for countries such as Italy and Spain. The organization is also proactively working to make life easier for the region’s banks by easing collateral requirements. Additionally, progress is being made on passing the new EFSF measures, which would equip the fund with expanded powers (such as the use of leverage = increase its firepower). The G-20 vows to stem the crisis through coordinated action. There’s little chance of governments letting any important financial institution fail. This is a fantastic buying opportunity for the long-term investor or baby boomer — S&P 500 yield is now higher than the 10- Yr Treasury yield.
+ Existing-Home Sales jumped 7.7% and blew past forecasts for a 1.4% rise due to falling home prices and lower interest rates. ”Favorable affordability conditions and rising rates are underlying motivations,” Lawrence Yun, chief NAR economist. Increased home prices will support prices for the regular consumer’s largest asset. Furthermore Permits showed an uptick and will help the construction sector in the months ahead.
Bear
- The Fed initiates Operation Twist, but markets are unimpressed as the Dow plunges more than 6% to end the week following the announcement - its worst week since October 2008. This week’s major reversal marks a major turning point in our financial and economic odyssey. The emperor has been disrobed; he has no clothes. Furthermore, it’s quietly shaping up to be April all over again in Congress.
- “Housing remains in the doldrums”, sings the broken record. Without housing, an economic recovery will remain elusive. Investors are beginning to lose confidence in banks’ mark-to-fantasy price quotes; moral hazard is coming home to roost.
- When housing acts as an anchor, consumption and confidence will sputter. The all-important holiday shopping season isn’t looking so hot based on preliminary reports.
- Arrrg!!! In a sign of bailout fatigue, the Pirate Party (no joke) just made a bigger political statement than Merkel’s own ally, the Free Democrats (FD). The FD accounted for less than 5% of the vote, which disqualifies them from picking up seats in the election. Investor confidence declines to the lowest in 2 1/2 yrs. Meanwhile, Greece continues to get squeezed. At what point will the populace rise up and revolt? The breaking point may be near. Continued austerity will not solve the problem. Italy (and its banks) are downgraded by Standard & Poors, sending Italy’s 10-yr yield to dangerously high levels…again. The ECB acknowledged that it loaned out $500 Million to an unidentified bank (not a sign of health, to put it mildly). And for some gasoline on the fire, Eurozone PMIs fall under the 50 level for the first time since July 2009 (no Jackson Hole this time to save the day).
- The IMF cuts its global growth estimate. Rio Tinto and FedEx throw cold water on bullish hopium. Protectionism is making a comeback: a chippy China lashes out at Europe; the US files an official complaint against China’s chicken tariffs; Brazil institutes 30% tariffs on cars. Meanwhile, England ponders printing more funny money as prospects have dimmed, while inflation is rising —stagflation anyone? Japan’s exports under-perform expectations, signaling weakening global demand.
- The Philly Fed released its “State Coincident Indexes” for August, used to measure economic activity on a state by state basis. This index shows a national economy entering stall speed. It remains vulnerable to an exogenous shock…..such as the Eurozone.
Well here’s something you don’t see everyday. (click on the pic for the deets)
As per the IMF, the global recovery won't be derailed.
Things are slowly improving. The IMF doesn’t believe that higher commodity costs or the earthquake in Japan will derail global growth. If China doesn’t experience a hard-landing or the US doesn’t re-enter recession, this remains a possibility.
My beef is that while the global recovery continues, it is very weak and unstable. If we have an exogenous shock (like higher oil prices), how much will the recovery be able to withstand? The recovery is being tested with oil prices near $110.
Eurozone Crisis: Take 2 (The Return of Greece)?
This is quite interesting. The whole EU bailout package for Greece was based upon the premise that the country would come through on its promise and reduce government spending in order to bring its budget back in line. However, what will happen if the Greek people vote Papandreou out of office? Does a new government proceed to give Germany and the IMF the finger and cause a new round of panic in the Eurozone?
