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In This Issue.
* EU leaders go where they haven't gone before.
* Greece forms a new Government.
* SNB threatens to weaken franc again.
* Italy & Berlusconi back in the news.
And, Now, Today's Pfennig For Your Thoughts!
Papandreou Steps Down.
Good day. And a Marvelous Monday to you. A rainy Monday for us here in St. Louis. Rainy days and Mondays do get me down, as I'm a sunshine kind of guy! And when you add rain to a Monday, well. It starts the week off on a soggy foot. But, to make it better, Eric Clapton's song, Let It Rain, is playing on the I-Pod!
It's raining on the Eurozone leaders again this morning too. To get you caught up, let me go back to what happened since I signed off on Friday morning. First of all Greek Prime Minister (PM) Papandreou, did receive a positive Confidence Vote from his Parliament, regarding the Eurozone Grand Plan. But there was a caveat to the vote. It was approved only on the understanding that Papandreou would step down, and that a new government would be formed to take them into the next election on February 19, 2012.
This new government was formed over the weekend, which was a combination of the two existing parties, to for a Unity Party. This was done to give the markets confidence about Greek carrying out the measures of the Grand Plan. And at first, the markets took the bait, and the euro rallied. But, then someone with a brain borrowed from the Wizard of Oz, realized that what the Eurozone leaders had done, when they pushed Papandreou to cancel the referendum that he had proposed for the Greeks to vote on the Grand Plan.
Now remember, the Grand Plan was not just the carrying out of the austerity measures for Greece. The main caveat of the "plan" was that Greek debt holders would take a 50% haircut, which means "loss", and the derivatives people are still trying to decide whether or not that constitutes a "default".
So. getting back to the Eurozone leaders and their pushing Papandreou to cancel the referendum. I was reading last night, and there are a lot of comments out there, but the ones that make the most sense is that the Eurozone has gone someplace that they should never have gone. Remember now, that German Chancellor Merkel, and French President Sarkozy, told Papandreou that if the Greeks voted No on the referendum that they were voting to leave the euro. Knowing that his countrymen would vote no. He cancelled the referendum.
I liken the whole situation to what we saw here last summer. Remember when we had all the saber rattling about the debt ceiling. It was the first that some of us had hear of the voting program that was called the "nuclear option". Well.. I think Merkel and Sarkozy, threw the nuclear option at Greece. and that's probably not what the markets wanted to hear.
Of course they didn't like the idea of Greece voting, and they sure didn't like the idea that there now exists a "nuclear option" that Eurozone leaders can throw at a country. A financial institution also used a phrase that I've used for 15 years, saying that "Eurozone leaders have "Opened Pandora's Box" of unintended consequences. So much for the all for one, eh? Does this mean that the Eurozone / euro experiment is doing a Wicked Witch and "melting away"? Not sure we can make that call just yet, folks. The euro is still holding its head above water. But, like I've said for a couple of years now. The euro gets its strength from the fact that it is the offset currency to the dollar. I'll come back to that thought in a minute, but first, this is running through my mind, so we have to go here!
Here. is that to point out the idea of the euro getting its strength from the fact that it is the offset currency to the dollar, is an economic data print this morning. Eurozone Retail Sales for September fell -.7% VS August. The consensus forecast was for a fall of -.1%... And year-on-year Eurozone Retail Sales have fallen -1.5%... But, still the euro remains stronger than the U.S. dollar.
Not to say that one Retail Sales report would make the euro crash to parity, but the point is that even a weak report like this, and this isn't the only one we've seen from the Eurozone lately, would be enough to push the euro much weaker.
The goings on in Greece have pretty much brought the euro from 1.50 to 1.37. And if you want to see the euro crash to parity, the rest will have to come from the dollar strengthening.
This weekend, I saw a graph, that tells it all, folks. It was a graph that showed one big circle that represented U.S. debt. and then all these smaller circles that represented the Greece and other Eurozone countries' debt. Needless to say that the U.S. debt was larger than all of these smaller circles. Much larger! So. when people ask "with all these problems in the Eurozone, how does the euro remain stronger than the dollar"? Now, you have an answer for them!
Ok. On Friday, the Jobs Jamboree left the U.S. wondering about its so-called economic recovery. for, if the economy was truly recovering, the economy would generate more than 80,000 net new jobs. And from the BLS I see that they added 102,000 jobs via the Birth / Death model. So, in reality, job creation in October was negative! I read a story over the weekend from a writer and analyst, who claims that the employment problem in the U.S. is over. What? What tea leaves are you looking at? I can't believe someone would say something like that. But, I'll keep my eye on him, to see how many times he says that again as we go forward.
The key item for the currencies today is a Parliamentary Budget Cote in Italy that PM Berlusconi, presented. There are people in the streets calling for the removal of Berlusconi. I have to tell you something here folks. back in the 90's I used to write about the scandals, and exploits of Berlusconi, and how he hurt the Italian lira. here we are late in 2011, and now he's hurting the euro. some things never change.
The Treasury buyers and holder's trip on Mr. Toad's Wild Ride continues, with the 10-year Treasury rallying once again, to 2.02%... (for a second there I typed 20.2%, now that takes me back when I first began trading short term instruments like T-Bills, commercial paper, and Bankers Acceptances)
I don't get it with Treasuries. Yes, it's debt from the largest economy in the world, but it's also debt that continues to grow, and grow, and grow.
Speaking of growing debt. We're now 1-week into November, and the clock is ticking on the Super Debt Committee, even if they got an extra hour this past weekend, their time to come up with $1.2 Trillion of debt cuts is ticking away. They have until Thanksgiving. If they don't present their plan by then, $1.2 Trillion of discretionary spending cuts will automatically go through. That was all agreed on last summer.
I've talked about this before, and threw out there for those who like to plan ahead, the thought that the Committee fails, and then Congress doesn't go through with the $1.2 Trillion of discretionary spending cuts. Moodys and Fitch will be very interested should the U.S. fail to carry through on their spending cuts. And do you really think that with the economy teetering, unemployment still soaring, and an election year about to start, that they will go ahead with $1.2 Trillion in cuts? I doubt it seriously, folks. What do you think? Do you think there is political will to do this? What happened to the last debt commission's suggestions to cut the debt? That's right. they were ignored!
So. the currencies get pulled one way one day, and another way the next day. And Gold gets thrown into that back and forth pulling. Gold is up about $10 this morning, and with the uncertainty in the Eurozone going on, Gold should be up. and probably up more than $10, but with the CFTC admitting that there are outside influences on Gold & Silver's price, but either not having the intestinal fortitude to do something about it, of not having the guns big enough to do something about it. Either way, nothing's being done.
In Switzerland, the Swiss National Bank (SNB) made some noise over the weekend about standing ready to take further measures to weaken the franc if economic or deflationary developments made it necessary. SNB Chairman Hilderbrand, went on to say that, "the franc was still highly valued against the euro and that he expected it to weaken further from here. Then add to those comments the fact that Swiss inflation printed at -.1% year on year. (here are those "deflationary developments").
We all forget the pain. yes. even SNB Chairman Hilderbrand, has forgotten the pain of the SNB's previous interventions. But yet, he stands prepared to lose more. I have an idea for the SNB and the Bank of Japan (BOJ) as long as we're talking about intervening. You say that you're intervening because your exporters are losing money. Hey! How about you not intervene, and take the money you DIDN'T lose and give to the exporters that say they are losing money. That way, instead of you both losing money, because the intervention never works in the long run, you can both hold your heads up high! HAHAHAHAHAHAHAHA!
The data cupboard here in the U.S. will get down to business Thursday when the Trade deficit for October prints, along with the Monthly Budget deficit. I just MAY BE about the only person that keeps track of these two anymore, as the markets and most consumers have become Comfortably Numb with the deficit numbers.
Then there was this. The whole letter today could have been a Then There Was This, eh? So. here I'll just make mention of the loss this past weekend of Andy Rooney. Former St. Louis Cardinals' Pitcher, Bob Forsch, also died. I watched my only no-hitter with Bob Forsch on the mound in the 80's. And it doesn't look good for Joe Frazier, the former boxing champ. when I saw that this weekend, I just kept hearing Howard Cosell, saying" down goes Frazier". sad stuff.
To recap. The situation in Greece gets even more confusing, as Papandreou steps down, and a new government is proposed. Did Eurozone leaders come up with their own "nuclear option"? Currencies are drifting today. no real direction. And the Jobs Jamboree was disappointing once again, with real net job creation a negative on the month.
Currencies today 11/7/11. American Style: A$ 1.0335, kiwi .7955, C$ .9830, euro 1.3755, sterling 1.6050, Swiss $1.1150, . European Style: rand 7.9715, krone 5.63, SEK 6.61, forint 223, zloty 3.1725, koruna 18.1720, RUB 30.59, yen 78.05, sing 1.2705, HKD 7.7705, INR 49.10, China 6.3505, pesos 13.51, BRL 1.7545, dollar index 77.04, Oil $94.48, 10-year 2.02%, Silver $34.55, and Gold. $1,775.30
There are conflicting reports this morning, this just came across, that Berlusconi has resigned. I doubt that has happened, he may be forced out, but not quit.
That's it for today. Thanks to all again, who have been keeping me encouraged. I feel much better today, still can't talk without pain, but the muscle spasms in my jaw have slowed down. My jaw is still swollen, but the lip is better. We had a very nice birthday dinner for Rachel last night (Andrew's lovely wife). All the kids and grandkids were at the table together. So, Happy Birthday Rachel! I watched my beloved Missouri Tigers lose Saturday night. UGH! And Alex finished 16th in backstroke, but has knocked about 10 seconds off his backstroke time this year, and his freestyle time, so he's on track to be a good swimmer. My friends, Jason and Erika are coming for a visit today, so that's fun! And with that, I'll get this out the door and hope that you have a Marvelous Monday!
EverBank World Markets
11-07-2011 10:03 AM