This page has been archived and commenting is disabled.
Early Thoughts From Art Cashin
Snow, coffee and Cashin - the perfect morning.
Back To Follow The Bouncing Buck – Rumors about a possible rescue package for Greece dominated Wednesday’s trading. As each new rumor made the rounds, the dollar basket (DXY) would react. Whatever that reaction was, it produced an opposite reaction in gold, oil and U.S. stocks.
As stocks opened, rumors circulated that a meeting of the two key political parties in Germany had ended without a Greek bailout plan. The DXY rallied and stocks headed lower quickly.
About 10:30, other rumors circulated that a rescue plan had not been hammered out but was still in the works. In Pavlovian response, the DXY reversed and headed lower. Bids returned in stocks, gold and oil.
Over the balance of the day, the markets zigged and zagged in response to each new rumor or conjecture. As we had projected in Wednesday’s Comments, the East Coast blizzard left markets thin and thus susceptible to short choppy swings.
The action did little to clarify the technical picture. The churning ate into some of the oversold condition but provided no clear signal of direction.
It’s Great To Have Articulate Friends – Yesterday, I quoted extensively from my pal, Dennis Gartman, on the strictures that the Lisbon Treaty puts on any bailout. Today, I crib from another good friend, John Mauldin, on some of the political problems of a rescue package. In his intro to this week’s Outside the Box, John wrote:
I made the point that if Greece defaults it does not necessarily mean they have to leave the EU, any more than if Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on.
EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate. Greece would be forced to balance its budget. Since they are part of the euro, devaluing the currency is not an option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for Greece. But in the long run, it is a better option than default.
Further, and more important to the rest of Europe and the world, the results of a Greek default would be financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis.
And the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime problem.
Bailing out Greece without serious and credible deficit reductions by their government over the next few years would simply delay the problem, and it is not altogether clear the bond markets would go along for very long. At the end of the day, it may be the bond market which forces the Greek government and its people to take some very bitter medicine. Stay tuned. This is just the beginning of what will be a series of sovereign debt crises over the coming decade. It is important for the world that we get this one solved right, or the consequences will be quite severe.
There are vague reports this morning that the EU leadership, with Germany’s blessing, has agreed on a rescue plan. But, as of this writing, there are no details available. We don’t even know what the structure will be. Therefore, we don’t know how they address the challenges John outlined.
The bottom line will be how the unions and populace react to the government’s austerity moves. These are certainly interesting times
Cocktail Napkin Charting – As noted above, Wednesday’s action may have clouded rather than clarified the technical picture. Even a seasoned technician like Walter Murphy titled his discussion this morning “A Coin Toss”.
Yesterday, the S&P circled the wagons within the support band of 1058/1053. The intra-day low was 1059. The snowstorm may have postponed the technical resolution. Now the Lunar New Year may blur trading as much of Asia goes on holiday. Nonetheless, a definitive move appears to be looming in the next few trading days. We hope to get some clue to direction before it actually happens.
For today, the napkins suggest that first support still is 1058/1063. Resistance looks like 1074/1078 and then 1083/1088
Consensus – The details of the deal on Greece may make or break the markets. Initial Claims will also be an influence. Choppy trading likely to continue. Stay very nimble.
Trivia Corner Answer - In Ed Garr's project the painters get $70 and the trimmers get $30 per day (obviously it's not NYC).
Today’s Question – In keeping with Governor Gerry - Speak softly - A "G" can be hard (as in Grant) or soft (as in Gypsy). Name a common six letter word (no hyphens) that has two soft "G's". (Hint - think kitchen!)
And today's history lesson.
On this day in 1812, Governor Elbridge Gerry of Massachusetts was asked to arbitrate an important matter in the new nation. Who better could you want? Gerry had signed the Declaration of Independence, been part of the Constitutional Convention and served as a member of Congress, before becoming Governor of Massachusetts.
As a father of our country Gerry was asked to determine the lines of reapportionment for the State's senatorial delegation. He proceeded to draw a group of crooked lines that made a random walk look like a moonshot. Amazingly, these squiggles happened to coincide with the strong points of Gerry's party. And a new word entered the language -Gerrymander - meaning to abuse your power in order to enhance the election chances of your friends and yourself. In the American tradition of justice, Gerry was punished by being elected the Vice President of the United States under James Madison one-year later.
Luckily for the nation no person known to do anything crooked or even to show favoritism to his friends was ever sent to national politics again. Before we leave the multi-talented Founding Father, we should point to pronunciation. Most Americans (and non-Americans) tend to pronounce theeponymous drawing of erratic but favorable guidelines "Jerry mandering". But Elbridge and his family pronounced the "G" as in Gary or Good. Or, maybe some spinmeister of the 1800's convinced the media and the public to pronounce the deed differently from the doer.
However you pronounce it, the market looked grounded and grungy yesterday. The volume bordered on the non-existent but that didn’t keep prices from gyrating.
Source: UBS Financial Service
»
- 4017 reads
- Printer-friendly version
- Send to friend
- advertisements -
Gadget
Trivia answer: ginger
Congrats....beat me to it.
Looks like PPT working extra hard this morning Will 10000 hold? Looks like PPT working extra hard this morning Will 10000 hold? Next leg of downturn to begin soon: http://www.iamned.com
This is a warning get out
Good analysis: http://www.iamned.com
Previous choppy sideways action for DOW/SP500 and EURO have resolved once again to the downside.
So SP500/DOW downtrend and the USD uptrend reasert their dominance yet again.
This is very bearish for equities.
Substantial USD rally just gets closer and closer.
http://www.zerohedge.com/forum/market-outlook-0
Living here under the flightpath to ORD, I'm nervous Art used Illinois in his example.
Ginger
Mary Ann
On September 17, 2009 Gallup reported that 46% approved of Obama's handling of the economy and 38% approved of Obama's handling of the deficit.
Last Monday, Gallup reported that approval for the handling of the economy and deficit had fallen to 36% and 32% respectively.
Main Street, it would appear, does understand that the demand restoration project is not working yet.
Probably because Main Street consists of humans, and as Larry Bummers noted on the ski slopes recently 'tis a 'human recession'. Translation: we can fudge the stats but it's harder to get folks to discount their lyin' eyes.
And those eyes are transmitting that it's getting worse not better. Gallup also recently reported for the Week of January 25-31, 57% surveyed believed that the economy is getting worse, versus 51% a month ago.
Trillions of meatballs gets you, even with your V shaped lens, flat at best?
Inventories may bring you recessions but they sure as heck don't deliver recoveries. Only red-blooded organic income growth resulting in real private sector demand delivers real growth.
And where oh where will this great nation generate growth weaned from the Federales teet?
Manufacturing? Heck, we couldn't create manufacturing jobs over the last two 'recoveries'.
Finance, real estate, insurance? Helicopter bucks for these constituencies are what caused the over-consumption and misallocation that put us in this mess.
Technology? Well this humble blogger thinks of tech as the greatest enabler of deflation ever created.
Biotech and 'green' industries should make a marginal contribution but other than popcorn(Hollywood), guns(military) and butter(agricultural) the only way out of this would seem to be currency devaluation and a lot of service jobs supporting the folks that come to America to shop half-off.
It could be worse. We could be France which is going through an existential crisis. As 'gauling' as playing second fiddle to the Yanks has been, a future where China moves the ball? Quelle horreur!
And the Brits? They're praying for the next North Sea or as the FT recently stated 'something will come along, it always has.'
As noted previously on this blog, inflation expectations were well anchored in the Great Depression. We had disinflation, not deflation. Currency devaluation brought us out of the muck. The first country to leave the gold standard was Australia in 1930 and their economy recovered soon thereafter. The next year New Zealand and Japan took the same action with the same results. Several more countries replicated this action over the next few years. The United States in 1934 devalued the dollar by over 40% in 1934. France and Italy waited until 1936 so too did their economies wait to recover.
Clearly those countries that have the ability to devalue their currencies today will have the pleasure of seeing their economies recover 'tomorrow'. This obviously does not bode well for Euroland but is very promising for the Brits.
For us Yanks it's a real conundrum.
To devalue the currency we need to be able to overcome the groundswell to rein in spending and relative calm internationally so de-risking isn't 'carried' back to the dollar. Notwithstanding whether we have reached zero-hour where adding debt to our current burden has no positive contribution to GDP, notwithstanding whether 'austerity' or 'kicking the can' wins the day, it would appear that the only 'stimulus' that will pass short-term is the type that Adam Smith once described:
'Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands... Such people, as they them-selves produce nothing, are all maintained by the produce of other men's labour... Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.'
It's a Deadhead Economy ... hey don't bogart my check dude!
ucvhost is a leading web site hosting service provider that is known to provide reliable and affordable hosting packages to customers. The company believes in providing absolute and superior control to the customer as well as complete security and flexibility through its many packages. cheap vps Moreover, the company provides technical support as well as customer service 24x7, in order to enable its customers to easily upgrade their software, install it or even solve their problems. ucvhost offers the following different packages to its customers