Far from having my holiday spirits uplifted, I’m increasingly glum (about the markets, but not about life, liberty, and the pursuit of happiness) on account of the lack of any good cheer coming out of…well, anywhere.
Take Europe, for example. You know, Europe, as in the European Union. As in that region of the world that has always gotten along, happily sharing each other’s cultures, cuisines, and shrapnel wounds from their exploding sovereign debts, courtesy of a common currency that affords cheap financing for budget bludgeoning.
There’s no good cheer over there.
Didn’t anybody hear Christine Lagarde (formerly one Europe’s own when she was running finances for France, but now runs around with whips and chains as the high-heeled dominatrix of the IMF)? Last week she said that if we don’t all work together our situation will be similar to the 1930s.
She wasn’t just talking to the Europeans. She was warning world leaders and central bankers.
Good thing Fed Chairman Ben Bernanke got the message. He told lawmakers last week that they have “no further plans to aid European banks.”
So much for holiday spirit.
But, I think the Beard is just too modest; he wants to be a secret Santa.
In fact, there’s really a lot of gift-giving going on over in Europe. If you look closely you’ll see that stockings and sacks are being filled, and the Fed was the first to contribute.
But (frighteningly, if not ominously), if you look closer you’ll see those stockings and sacks aren’t being filled with presents, they’re being filled with sand. They’re sandbags.
Sandbags? Yes, sandbags, as in the last ditch effort to save towns from catastrophic flooding when the big dam breaks.
Click here to find out why European leaders are preparing for catastrophe…
After once again teetering on the precipice of European implosion on Wednesday, events on Thursday, Friday, and Saturday proved once and for all that we’re out of the woods.
Remember that Alka-Seltzer commercial?
Plop, plop, fizz, fizz, oh what a relief it is…
Maybe you don’t remember it, but if you’ve ever had a hangover (be honest, now), and you tried Alka-Seltzer, you know that dull pain tends to linger, no matter what remedy you apply.
So, was I just kidding about being out of the woods?
Have you been drinking? Of course I’m kidding.
The “hangover” of European sovereign debt isn’t going away any time soon.
On Wednesday, global markets swooned. Why? Because investors summarily dumped Italy’s 10-year bonds, causing their yield (interest rate) to soar intraday to just over 7.6%.
The scary thing about that for everybody was that once they started rising above the 7% line-in-the-sand yield, Greece, Ireland, and then Portugal all had to be bailed out.
And it’s getting even scarier…
What a fun day that was yesterday.
No, I’m not talking about Jefferson County, Alabama, filing for bankruptcy… that’s not fun or funny, as you’ll come to learn shortly.
I’m talking about global stock markets and bond markets.
Wow, what fun! Can you imagine being short stocks and having one heck of a day yesterday? I can.
Can you have imagined that Italy’s interest rates would have soared the way they did? I can. And you could too, if you read what I wrote on Monday about how the CDS market was broken and what that would do to Italian bond rates.
Look, I’m not the kind of guy to say I told you so, but if I was, I’d sure be saying it now.
Italy is the canary in the coalmine – not Greece. (FYI, they used to keep a canary in every coalmine, because if it died, that meant poisonous gases that humans couldn’t smell were present.)
If Italy implodes, either by its bond yields exploding, its economy sinking, or its fiscal house burning, all of Europe is going down. And America will surely follow.
While you were sleeping this morning, Italy had to offer 6.087% interest on the one-year bills it floated. That compares to the 3.57% it paid just last October 11. What smells is that Greece just floated some bills at 4.90%.
In other words, the canary (Italy, in case I lost you) is starting to teeter on its perch.
It has another €28 billion to roll over by the end of 2011, and how much it will have to offer investors to buy its paper is anybody’s guess.
There’s only one guessing game that matters in Europe right now. That is whether or not the ECB will step up and promise – à la the U.S. Federal Reserve Bank – to be lender of first and last (and in-between) resort.
The ECB has to do something bold. And it probably will.
If it does, the next guess will be, where will its backing and credibility to backstop all of Europe come from?
Will it come from the same teetering nations that’s its going to have to support? Good luck with that. Or will it come from the backing of the IMF, with a ton more commitments from the U.S. and other G20 countries? Good luck with that.
We’re going to get a relief pop this morning in the stock market. Good luck with that, too.
Until Europe is figured out – and it won’t be any time soon – stay short with tight stops, just in case there is a Santa Claus coming to a chimney near you.
Oh, and by the way, if Italy starts singing again, watch Spain, then France, they are the next canaries we’ll have to watch in the coal pit we call the European Union.
Full story here…
A referendum? In Greece? Are you kidding me?
As my 16-year-old nephew Nathaniel says, “What the…?“
Apparently, that’s a popular statement of surprise in his southern California surf town. The first time he said it, I was flabbergasted, thinking he was going to finish that well-worn exclamation with a bad word. But it works better his way…
What isn’t going to work is George Papandreou’s call for a referendum.
He wants the Greek people to decide if they want to tighten their belts so much that they’re willing to starve themselves to death for the sake of paying back the IMF and their European neighbors.
Why his move hurts everyone…
Lately it seems everyone wants to know one thing: Are stocks going to rally through year-end?
The answer is an unqualified “maybe.”
To explain this uncertainty, let’s look at where the markets are today.
Last week, the Dow Industrials gained 1.4% to end the week at 11,808.79. The S&P 500 rose 1.1% to 1238.25. But the Nasdaq Composite fell 1% to 2637.46.
While it seems like stocks have come a long way in a short time – and they have – in the big picture, we’re still crawling and clawing our way up…
Here’s the full picture…