Just the headlines. They speak volumes:
OBAMA SAYS U.S. `READY TO DO OUR PART' TO RESOLVE EURO CRISIS.
OBAMA SAYS SOLVING EURO CRISIS OF `HUGE IMPORTANCE' TO U.S.
On October 27th we rallied 40 points in SPX and hit 1285. So far today we are up 32 points and are at 1185. About the only positive thing I have to say is that 1185 is cheaper than 1285. The reasons for the rally are largely based on headlines and rumors out of Europe and being too pessimistic about what happens if there is no “solution”. The IMF bazooka does not seem to be there (offically denied), the EFSF is nothing like what was promised, Euro-bonds seem practically impossible in any time-frame and 'fast-treaty-ing' remains a pipe-dream, Greece is closer to actual restructuring as it starts direct negotiating, and while Thanksgiving Sales were up it seems the main reason for a market rally is the amrageddon-like scenario of the break-up and the typical belief that 'the-worse-it-gets, the-better-it-will-be-in-the-end', so buy.
- According to La Stampa, the IMF is preparing a EUR 600bln loan for Italy, in case its debt crisis worsens, although the report was swiftly denied by IMF officials
- Several papers reported that Germany is considering the option of joining the five other AAA-rated Eurozone member states to issue common bonds. However, the German finance ministry dismissed the report later in the session
- Particular narrowing was observed in the Belgian/German 10-year government bond yield spread partly after Belgian negotiators reached an accord on the country's 2012 budget during the weekend, together with well received OLO bond auctions from Belgium
A bullish argument? In three words: Print More Money.
By now the broader population has been inundated with reports of what a stunning retail experience Black Friday was. And for those who haven't just head over to CNBC: "Sales rose an estimated 6.6 percent to a record $11.4 billion on Black Friday, typically the busiest shopping day of the year for Americans, while the traffic at stores rose 5.1 percent, according to ShopperTrak. The day's sales growth was the strongest percentage gain since 2007, when sales rose 8.3 percent on the day after Thanksgiving, said Ed Marcheselli, chief marketing officer at ShopperTrak, which monitors retail traffic." This is happening despite the savings rate recently dropping to pre-Depressionary level, and despite revolving consumer credit (as in not cars and colleges), continuing to contract. That there is more than enough fine print will be largely irrelevant for the mainstream media which will naturally trumpet this as the next best thing to the S&P actually rising for once: "More than 120 stores at the Mall of America opened at midnight. The crowd at that point was about 15,000 people. Mall operators estimated that it was the largest crowd ever at the mall, which is big enough to hold seven Yankee Stadiums. While eager shoppers emerged from stores around the country lugging big-screen TVs and bags full of video games and toys, it was far from certain that people will pull out their wallets for much more than the best deals this year. Shoppers with limited budgets started using layaway at chains such as Walmart as early as October. Retail shares fell more than the overall market on Friday. "Americans are still worried about jobs, still worried about the economy," said Mike Thielmann, group executive vice president at J.C. Penney, who noted that shoppers were buying gifts and for themselves, and said jewelry was selling well." Yet what really caught our attention was the Retail Group comparison of this "record" black Friday Weekend. From Bloomberg: 'RETAIL GROUP SAYS SECOND-BEST BLACK FRIDAY WEEKEND WAS IN 2008." As a reminder, Thanksgiving 2008 happened just after a nearly 400 point plunge in the S&P in two months as can be seen in the chart below. Which begs the question: with the world on the verge every single day once again, is it a coincidence that people spent more than they did only compared to 2008 when the world was once again ending. In other words, did Americans really spend "like there is no tomorrow" (more so than ever that is)... and what happens when the bill (because there is no doubt the purchasing was entirely on credit) is in the mailbox?
Something big has to happen soon, or else...
We have discussed the obvious lack of demand for EFSF paper in the last few weeks and note that Friday saw the longer-dated issue break above 4% yield - clearly indicating the market's unwillingness to 'believe' in the AAA rating (and therefore any explicit wrapper that may evolve from this entity). Peter Tchir, of TF Market Advisors, notes the headlines and rumours are already coming in fast and furious. The EFSF is starting to put out some data and is discussing tradable insurance certificates as well as very short-dated issuance (further evidence of a dearth of demand). We worry that rolling short-dated EFSF paper will lead from a liquidit crisis to a solvency crisis much faster. European leaders clearly saw how weak the market closed every day last week (futures accelerated to the downside after 4 pm) and are trying to talk up the market. We remain highly skeptical and will continue to use overly optimistic rallies to get shorter.
UPDATE1: Oil is rallying (at $97) back towards the day's highs as EUR is back near the week's lows (1.3220).
UPDATE2: Major Financials dropped after hours (MS -0.15% on the day)
Stocks plunged at the close for the third day in a row to cap the worst Thanksgiving week ever. US equities seemed in a world of their own for much of the day - especially financials - as all the hope and rumors faded and clearly a large number wanted to be flat or short into the weekend. Across a broad basket of risk assets (CONTEXT), today's equity rally and selloff was pure emotional overshoot and correction as we closed back at reality. What has been most notable this week - particularly the last day or so, has been the sell-off in Treasuries. The concerns that European entities are repatriating anything and everything should be very worrisome and the volume into the ES close suggests that fear is growing. As Peter Tchir noted, it is increasingly evident that the only logical conclusion is that we are further away from a solution or agreement in Europe than we have been in a long time.
Back in August, the news that Venezuela ruler Hugo Chavez had decided to repatriate his gold from London vaults made headlines and was one of the key catalysts sending gold to its all time highs north of $1900/oz. Since then the story died down with no updates. Until today: Bloomberg has reported that Venezuela will receive the first shipment of gold reserves being repatriated from U.S., Canadian and European banks today. "Chavez, speaking on state television, said that the bars will be escorted to vaults in Venezuela s central bank by the military after arriving by air to the South American country. The gold that was over there in England will soon be arriving, said Chavez. The opposition says that I'll put the gold in the presidential palace or give it away to Cuba or something. This gold is going back to where it should have never left -- to the Central Bank of Venezuela. Chavez, a former paratrooper and self-professed socialist, in August ordered the central bank to repatriate $11 billion of gold as a safeguard against volatility in financial markets." Will Chavez demonstrate phenomenal foresight having collected his gold just months ahead of Europe falling into the abyss of a toxic debt spiral or were his worries unfounded? It remains to be seen. However, he will probably sleep sounder knowing that his gold is no longer in the vaults of the LBMA, HSBC, or several hundred feet under the New York Fed. That is, of course, if the "presidential palace or Cuba or something" ends up having real 999 gold, and not just several blocks of Tungsten with a pretty plating on top.
- Trading volumes remained thin owing to early closes associated with Thanksgiving in the US
- Italy paid a record premium of 6.504% on the 6-month BOT and the bid/cover remained on the softer side, however the country managed to raise the full amount in the auction
- Market talk of the ECB buying Italian and Spanish government debt
- According to an article in the FT, the EFSF may not be able to raise enough funds to increase its capacity to more than EUR 1trl as planned
- ECB's Coene said that if the current trend continues, rate cut is probable
Walk Thru For The Upcoming European Treaty Changes - Is A Redemption Fund The "Transitory" Hail Mary?Submitted by Tyler Durden on 11/24/2011 16:35 -0400
Once again today was marked by ongoing disagreements over the form of any and every solution (or non-solution) to the 'problem' that is the Euro-Zone. At every corner, the EU Treaties are dragged up as impediments to the free-and-easy save-us-with-your-printing-press arguments (among others). Credit Suisse provides an excellent summary of the relevant sections and while their perspective is that the Treaties do provide some flexibility for the ECB to extend its operations (and the incumbent introduction of much stronger fiscal watchdog measures), Euro-bonds will (no matter what and certainly noty a slam dunk for success) require a full Treaty change - a process that could take years. There are currently three options being discussed for the Stabilittee bonds - all of which have more than short-term time horizons for any potential implementation and so we suspect, as CS mentions, that the talk of the Redemption Fund from the German Council of Economic Experts will grow louder as an interim step.
The market always goes up during Thanksgiving week.
A Compendium Of Unforeseen (NOT!) Risk In Today's MSM Headlines on Europe, China & Banks - Meaty Reading For The HolidaysSubmitted by Reggie Middleton on 11/23/2011 10:25 -0400
This will probably piss off everybody in big banking, mainstream media and inter-marital analyst relations. I still want to be invited to ALL of the Wall Street Christmas parties, though :-)
Roughly six months after the imposition of the No Fly Zone over Libya, which ultimately led to the liberation of the country's Light Sweet Crude and the placement of an Eni SpA executive (Italy's largest oil company) as Libya's oil minister and also had a side effect of getting Gaddafi murdered in broad daylight by the reformed freedom fighters, the script is about to be rewound from the beginning, and a few thousand miles east, this time next to explosive powderkeg Syria. Albawaba news, which cites Kuwait's al Rai daily, reports that Arab jet fighters, and possibly Turkish warplanes, backed by American logistic support will implement a no fly zone in Syria's skies, after the Arab League will issue a decision, under its Charter, calling for the protection of Syrian civilians. In other words, foreign countries will take it upon themselves to do what only America has done with impunity so far: decide what is best for a given sovereign nation's population. Granted, we have yet to verify the credibility of both Al Bawaba and Al Rai, although at first blush they appear substantially more credible than Debka-type fly by night operations. Which then leads to a sobering conclusion: if indeed Europe and the Western world is dead set upon an aerial campaign above Syria, then all eyes turn to the East, and specifically Russia and China, which have made it very clear they will not tolerate any intervention. And naturally the biggest unknown of all is Iran, which has said than any invasion of Syria will be dealt with swiftly and severely. Then again, the Iranian war foreplay has gone on for far too long at this point that we have gotten to where headlines about the "imminent" Iranian war are almost as ignored as headlines about how "Europe is bailed out" all over again.