Cracks in the Facade

ilene's picture

Cracks in the Facade 

(Excerpts from Stock World Weekly) 

The S&P downgraded nine eurozone countries on Friday, announcing the following actions: the lowering of long-term ratings on Cyprus, Italy, Portugal and Spain by two notches, and the lowering of long-term ratings on Austria, France, Malta, Slovakia and Slovenia by one notch. It affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands. According to S&P, Friday’s ratings actions were “primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone...

S&P also released a FAQ explaining its action, including this gem: “We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.” 

Reading the S&P FAQ, Bruce Krasting surmised, "you have to conclude that the conditions that would force a return of the legacy currencies will happen, and they will happen in the next twelve months." This emphasis on austerity is already producing predictable results. For example, in Spain, unemployment increased by a full two percent in a single quarter (Q4 Spanish Unemployment Soars By Most Since Lehman, Hits “Astronomical” 23.3%)

There was certainly no shortage of gloomy news, ranging from the disappointing Initial Jobless Claims numbers, the weak Retail Sales numbers, and the stark assessment of the current state of the eurozone by Standard & Poor’s. 

Chinese stocks were down last week as hopes for additional stimulus from the Chinese Central bank faded. China’s small and medium-sized manufacturing vendors are struggling with falling demand and rising prices for both materials and labor.

Tension continued building in the Middle East. The U.S. is significantly increasing its presence in the region as CVN Carl Vinson carrier group joined the CVN Stennis in the Arabian Sea, just off the Straits of Hormuz. Everything changed on Thursday, when news came out that an embargo on Iranian oil by the European Union is likely to be delayed by six months while member nations secure alternative sources for their energy needs. This news rocked the oil markets, with oil dropping over two Dollar in less than two hours.

Summing up the action and commenting on the situation in the U.S. Treasury market, Lee Adler, wrote, “The Treasury rally got some help this week from a surge in Federal Withholding Tax collections that is helping to keep new supply down. Whereas new supply had been exceeding TBAC estimates for the past couple of months, it has come back in line with estimates, and could be reduced even further in the weeks ahead if the sudden growth of withholding taxes persists.

“In addition to reduced supply, a renewal of the European panic with Friday’s S&P sovereign downgrades has Treasury yields again melting down, in spite of the fact that foreign central banks continue to sell their holdings. Another way of looking at it is that this buying panic is allowing FCBs to liquidate without destabilizing the market, which otherwise probably would have happened. The string of FCB selling has now reached 6 consecutive weeks which is unprecedented and suggests a structural change as central banks need to deploy funds at home. That problem for the US can be swept under the rug as long as Europe’s problems are bigger and the resulting capital flight boosts the Treasury market.” (European Panic Sweeps 700 Pound Gorilla Under The Rug)

Looking ahead, Lee opined, “The market may have given bears a glimmer of light on Friday, but so far, that’s all it is, a glimmer, mostly in the form of an increase in short term sell signals in the screening data. There were no material changes in any of the broad market indicators or price projections, although they have come down a little since Tuesday and Wednesday. I would say that what happens in Europe on Monday could point the way for the US when it reopens on Tuesday, but all too often we’ve seen the US reverse European action that takes place when the US is closed. A down day in the US on Tuesday could begin to trigger intermediate sell signals.” (Bears Get A Glimmer of An Opening)   

During a meeting between Li Yang, vice-director of the Chinese Academy of Social Sciences, and Treasury Secretary Timothy Geithner, Geithner responded to a question regarding the next round of quantitative easing by saying, “[the Fed doesn’t] have tools or ammunition left.” But when asked if the recent activity involving currency swaps and liquidity injections by six central banks is a form of QE3, Geithner admitted, “You could say that.” (China Advisor: Geithner Said No Tools Left For QE3) (See also: A Thinly Veiled Bail)

The European Central Bank (ECB) has been pursuing its own program of providing liquidity to the markets, to debatable effect, as described by Peter Tchir of TF Market Advisors. Commenting on Monday’s (Jan. 9) press conference by Merkozy, Peter wrote, “It appears that the ECB skipped QE and went straight to QGG (Quantitative Gift Giving). They aren’t buying too much sovereign debt, but they are willing to lend to banks using any collateral they can scrape up. They are fully encouraging banks to issue bonds to themselves, get a government guarantee, and post it at the ECB for some fresh money. I think that while many investors have been staring at the SMP (Secondary Market Programme) and whining that full QE isn’t being applied, the ECB has gone beyond that with other programs...

Between SMP and all these weird collateralized lending programs, the ECB has been pumping money into the system, and a big portion of their purchases, and lending, is against assets that are highly likely to default! Quantitative Easing implies some ability to get paid back or to stop easing by selling assets back to the market. Quantitative Gift Giving is simply throwing money at assets that will never be repaid.(Remember When The Dynamic Duo Was Batman And Robin)

Update: Zero Hedge reported (on Monday) that S&P is saying that a Greek default may be imminent: "Time for the dominos to fall where they may: head of sovereign ratings at S&P Kraemer spoke on Bloomberg TV...

"And the punchline:


"The only thing he did not add is that the default will be Coercive. What happens next is anyone's guess, but whatever it is it is certainly priced in. Also, let's not forget that the inability of the market to react to any news ever again is most certainly priced in."

In other news on Monday, Zero Hedge also reported that S&P Downgrades EFSF From AAA To AA+, May Cut More If Sovereign Downgrades Continue: "And so the latest inevitable outcome of the French downgrade from AAA has arrived, after the S&P just downgraded the EFSF, that pillar of European stability, from AAA to AA+. S&P adds: "if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'." In other words, as everyone but Europe apparently knew, the EFSF is only as strong as the rating of its weakest member. And now the rhetoric on how AAA is not really necessary for the EFSF, begins, to be followed by AA, next A, then BBB and finally how as long as the EFSF is not D-rated all is well."  

The prevailing bearishness makes it easy to ignore some bullish signs, such as this week’s Beige Book showing demand for commercial real estate picking up in multiple cities, including New York, Dallas, San Francisco, Atlanta and Chicago. It also showed a slight uptick in commercial and industrial lending in Dallas and San Francisco, and broad-based improvements in loan quality. Moreover, as Zero Hedge noted above, the market does not seem to be reacting to the bad news flow out of Europe, it seems to be functioning under the decoupling theory, also called the "head in the sand" theory.

John F. Carlucci at sees a bullish signal in the $OEXA200R (Percentage of S&P 100 stocks above their 200 DMA - chart below.) According to John, “OEXA200R remained encouragingly above 65% all week and ended at 69%. Of the three secondary indicators: RSI is above 50 and positive, MACD has not yet crossed into positive territory, and slow STO is above 50 and positive. Conclusion: The market has become tradable. However, traders must stay on their toes and keep the following commentary in mind.” He then discussed his concerns and reservations regarding the eurozone.





John also noted that over the last 21 years, the S&P has not been below or so close to its 200 DMA for this long without falling into a cyclical bear market. The last two cyclical bear corrections took at least 1 1/2 years to reach bottom. If the correction beginning in July 2011 turns into another cyclical bear, projecting 1 1/2 to 2 years out would put the next S&P bottom somewhere between the end of 2012 and mid-2013. Regarding the "tentative" good news in the U.S. economy, and whether it will counter the turmoil in Europe, and elsewhere, John thinks we'll know soon enough. (Best Stock Market Indicator Ever: Weekend Update)

One of the trade ideas submitted this week by Pharmboy is a buy-write on AMRN. Pharmboy wrote, “I like Amarin (AMRN, $7.17) - once a high flier (down 60% from its high) - for its Lovazza (purified fish oil) and good outcome in trials for lowering triglycerides in patients. I think starting a small, speculative position in the company is worthwhile. But I would not go gung ho. There are still risks involved. I like buying 100 shares of stock and selling one June 2012 $8 call and selling one June 2012 $6 put for $2.60 or better combined.” AMRN was trading at $7.17 on Friday, and the June $8 call was at $1.75, and the $6 put was at $1.10.

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Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Philstockworld, LLC (PSW) nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, Oxen Group or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great. 

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice. 

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arg's picture

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The Old Man's picture

OK. Here's what it looks like to me. The way the default and bond situation looks in the eurozone, is awfully reminiscent of people (Banks) and CDS's taking advantage of options still remaining. Anybody have any further info on this? Look at the Lehman problem. They really didn't exactly know what they were doing. Now that the rabbit is out of the hat, maybe somebody does. But, if that's the case, can the swaps survive the default? And who are the winners? Close attention should be paid to that. We may have a new breed of crooks. Maybe it's a "BOND BUBBLE". Man, that cracks me up. I have been reading about this for the last month. What took it so long?

The S&P, however, if the numbers and companies are properly configured, is showing closer wave lengths at higher volitility, or range. It's reaching further and further into massive swing points. The problem will be if it "can" reverse to (+), "how" long will it take,  and will it be a retrace of the "prior" up swing; only higher. Or in terms of electricity and sound, will it become a harmonic and crash upon itself, where the waves eventually crash upon themselves because of violent, voluminous trading between the buyers and the sellers. I love computers.

A good number of people are watching these items, as the article so well describes. 

The question is: "Who's thinking ahead of the curve?" (It is not the FED.)

And if anybody has a clue, just egg me. I like eggs. It means I've said something that people disagree with. That's how we learn.

sethstorm's picture

It's surprising that the S&P hasn't been co-opted or offed.  They are playing with fire.

Buck Johnson's picture

The S&P can't hide it anymore.

new game's picture

nothing to trade; watching the horizon for black figures.

this market is fucking fucked.  after many good years and last year being a bust, i just read z h and take er in.

add pm on dipsedodas and keepa chillen for the 08 type action coming to a nation near you.

flattrader's picture which is now


are among best sites around.

I have no idea why the Tylers continue to give Charles H. Smith and others a platform here when there is superior content out there.

Sure, it's about eyeballs...

....and speaking of eyeballs given that it's a market holiday where was the self-reinforcing Ron Paul thread for the brainwashed?  That should be good for 200-400 replies.

Here, let me start.

>>>Though a committed Baptist, Paul writes on his website, “My faith is a deeply private issue to me, and I don’t speak on it in great detail during my speeches because I want to avoid any appearance of exploiting it for political gain.”

Nevertheless, Paul’s support among the country’s most committed theocrats is deep and longstanding, something that’s poorly understood among those who simply see him as a libertarian. That’s why it wasn’t surprising when the Paul campaign touted the endorsement of Phil Kayser, a Nebraska pastor with an Iowa following who calls for the execution of homosexuals. Nor was it shocking to learn that Mike Heath, Paul’s Iowa state director, is a former board chairman of “Americans for Truth About Homosexuality,” which the Southern Poverty Law Center classifies as a hate group. Should Paul win the Iowa caucuses, it will actually be a triumph for a fundamentalist faction that has until now been considered a fringe even on the Christian right.<<<




>>>>Ron Paul has long been a favorite politician of Christian Reconstructionists. North was a Paul staffer during the Texas congressman’s first term and has called him the “mahatma of self-government.” As Adele Stan reported on Alternet, in 2008, Howard Phillips, a Christian Reconstructionist who founded the Constitution Party, was the keynote speaker at the rally Paul convened in the shadow of the Republican convention. (That year, Paul endorsed the Constitution Party candidate for president over John McCain.) “The people who I know who are big Ron Paul guys are old school Reconstructionists,” says Paul supporter Brian D. Nolder, the pastor of Christ the Redeemer Church in Pella, Iowa.

It might seem that Paul’s libertarianism is the very opposite of theocracy, but that’s true only if you want to impose theocracy at the federal level. In general, Christian Reconstructionists favor a radically decentralized society, with communities ruled by male religious patriarchs. Freed from the power of the Supreme Court and the federal government, they believe that local governments could adopt official religions and enforce biblical law.<<<

Ron Paul touts endorsement of pastor who defends death penalty for gays, delinquent children & adultery ---UPDATE: Phillip Kayser’s endorsement has been scrubbed from Ron Paul’s website.--- Another Pastor Problem for Ron Paul? UPDATED

Posted on January 12th, 2012

First read this: Ron Paul Receives Major Evangelical Endorsement from Dr. James Linzey, President of Military Bible Association
Then, read this: James F. Linzey Espouses anti-Semitic, White Racialist Conspiracy Theory
Then, check out the reaction at the Daily Paul: Amazing evangelical endorsement from the president and founder of the Military Bible Association! Paul’s supporters, for the most part, like the endorsement. Nothing yet from the Paul campaign. I wrote Dr. Linzey to ask whether or not the Paul camp intends to promote the endorsement, with no answer as yet. UPDATE: Dr. Linzey today urges all military personnel in South Carolina to support Paul.


Nozza's picture


it isn't about eyeballs, or just the base content. It's moved on from Web1 push-n-hope. Tylers know it's about comment and discussion and views. Sure they need content - but content needs comment, assessment, discussion, analysis, scepticism and humour to make it worth coming back to. Now what was this story about?

Boilermaker's picture
A down day in the US on Tuesday could begin to trigger intermediate sell signals...~ Lee Adler
Which is exactly why they have already reversed ES +10 handles from when I went to bed last night and will jack the living shit out of them tonight. If it doesn't fit, get a bigger hammer.  This bogus shit won't stop. The market will go on another magic carpet ride higher as a show of 'confidence' in what the EU leaders are doing.
Freddie's picture

Well they are finally talking about Greece defaulting.  It was always gonna default.    The biggest joke was the disgusting newsmedia, who loves our Chicago Allah, was talking about China bailing out Europe.   The ChiCom's running the show shoot political prisoners and harvest their organs to line their pockets.  Like the Chinese were gonna reach in their pocket to save Greece govt union workers and corrupt politicians.

RockyRacoon's picture

I fail to see the link to the EU and other mega-tragic situations and fish oil.  Or is it just me?

akak's picture

Funny, I was going to mention the same thing in regards to palm oil.

Taint Boil's picture





Palm Oil - there is a joke there somewhere LOL. Happy MLK day 

Strike through test 

Never Works For Me ......... Hey Sac



ThisIsBob's picture

How much of that European liquidity gets into US equities?

Boilermaker's picture

Probably quite a bit.  It's a real winner for everyone.

Fed -> ECB

ECB -> EU Banks

EU Banks -> US Equities

PPT ->>>> Jack Equities higher

Win, win, win, win, and win.

Vampyroteuthis infernalis's picture

Heads will be yanked out of the sand when all of the Euro banks roll over like that cruise ship in Italy. Everyone will trying to get off of that ship ASAP. No where to go though.

AbelCatalyst's picture

Everyone will run to US Treasuries for the short run - we'll see the 10y yielding 1.5 as the SHTF. Then they'll realize the US / Japan / UK Germany, etc. are no different than Greece and Italy... When the US 10yr yield starts to rise is when things are going to get scary, when people realize there truly is no safe haven,

Blank Reg's picture

No where to go? How about Gold. (I tried to come up with some sort of gold/life preserver metaphor, but I got nothing)