With All Important Liquidity Rolling Over, Will Market React As Both Q Ratio And CAPE Index Indicate 50% Overvaluation?

David Rosenberg points out two important observations that go to the heart of what has been propping up the market for so long - cheap, abundant liquidity. As Rosie shows, both Money Of Zero Maturity (MZM) and M2 have now officially rolled over: "The liquidity backdrop is becoming less alluring — MZM has declined YoY for the first time in 15 years and the trend in M2 is down to a mere 1.5% from 10% when the bear market rally began in March 2009." And while Rosenberg is cautious in saying that equities are "overvalued by more than 20% on a normalized Shiller P/E ratio basis" the real stunner emerges when one considers just how mispriced the market is based on a combination of Q ratio and the CAPE index. According to economist Andrew Smithers, equities are about 50% rich currently, which should beat least a little concerning to all the electronic mountain of worry climbers.

Desperation Time In Europe, As Bund Surges To Contract Highs

Risk aversion in euro is back big time. Not just is the euro getting whacked as fundamentals and technicals finally overtake the endless rumor mill, but increasingly desperate rhetoric out of Greece is making it seem inevitable that we could finally see the preparations for the landmark Santorini Sotheby's auction. Adding olive oil to the fire is Greek deputy Prime Minister Theodoros Pangalos, who is now playing Russian Roulette with a fully loaded gun and confusing it for poker, this time saying that it has been Germany's secret agenda to see Greece fail all along (not all that naive - we have been saying it for months). Alas, saying out loud what everybody knows is always a horrible move - just consider the US debt/GDP ratio of 140% which nobody wants to talk about. Quoting T-Pan: "As long as southern Europe is under fire, the euro is being shaken and falling and the conditions under which they (Germany) can win massive exports to the third world, to the rest of the world, are improving. I am quite worried that if a decision is not taken quickly ... then the euro will make no sense and if the euro fails this will take us many decades backwards in terms of European integration." Oh, and don't look now but the Bund just hit an all time high. At least real estate prices in America's richest city Newport Beach will hit another record as a result.

Euro Nosedives As Goldman's $1.35 Stop Loss Triggered

As we expected last night, the $1.35 EURUSD stop level that was advocated by Goldman, was just breached. Note the major sucking sound lower as all support was taken out. Watch out below as more rumors of Greece getting thrown to the lions emerge all week.

Daily Highlights: 3.22.10

• Asian shares mostly down; India's RBI's rate hike dampens demand.
• Bernanke says taxpayers shouldn't bear cost of dismantling financial firms
• China cautioned US against citing its currency as a reason for imposing trade sanctions.
• Historic health overhaul bill passes; Democrats clinch win in 219-212 House vote.
• IMF's Lipsky says advanced economies are facing 'acute' debt challenges.
• Merkel: Greece doesn't need financial help.
• Aetna reaffirms 2010 targets, says 2010 results "are off to a good start."

Dollar On Verge Of Break Out; Goldman On Verge Of Being Stopped Out (Of Long EURUSD Reco)

The DXY is ripping, and is about to break out of recent resistance levels. News out of Europe that no bailout of Greece is to be expected, further compounded by some serious doom and gloom out of Evans-Pritchard about the EMU and the euro in general, means that the euro will soon make a date with the one point two-handle. This is certainly not good for Goldman clients who just one week ago bought into Goldman's pitch of going long the EURUSD, with a 1.35 stop. Looks like that stop is about to be breached.

A Generous Government Keeps Doling Out The Refunds Even As 2009-2010 Tax Withholding Difference Hits New Low

We previously discussed the curious phenomenon of increasing individual tax refunds handed out by the US Treasury, despite record weak tax withholdings, and speculated that the Treasury's generosity, which is very much unfounded, is one of the main reasons for the consumer "outperformance" year to date, due to the excess money obtained by US consumers courtesy of what appears an oddly lax Internal Revenue Service. We won't speculate on the secondary implications of governmental cash flows to and from taxpayers, and instead will focus on actually following the cash. The conclusion is simple: even as the IRS has paid out far more in refunds in 2010 versus 2009, the difference in gross tax withholdings between 2009 and 2010 is at year highs. The government can not afford to pay refunds, yet does so at an alarming pace. The net difference (withholdings net of refunds) for just the first 10 weeks of 2010 is already at a ($42.7) billion cumulative number: a new 2010 high.

OilPrice.com Weekly Oil Market Update: 03/15/2010 - 03/19/2010

Crude oil futures kept falling back from highs even though speculative funds increased their bets that prices are headed higher. The benchmark West Texas Intermediate contract ended the week at $80.68 a barrel, after nearing $83 earlier in the week, compared to $81.24 a week ago. Saudi Arabia’s oil minister, Ali Naimi, made it clear once again on Tuesday that the world’s largest oil producer prefers a range of $70 to $80 for oil prices. Speaking to journalists in Vienna prior to and OPEC meeting, Naimi said the oil-exporting group, which accounts for 40% of daily oil consumption, won’t let tight supplies push prices too high.