Wednesday, June 13, 2012

The 'New Normal'- Yet More Economic Deterioration Out of Europe

The real financial news today had nothing to do with Mr. Dimon at the Senate.  It was again out of Europe.  German mfg took a big drop per MarkIt, and Spain is nearly insolvent per Egan-Jones.  So we had yet another sharp stock reversal to the downside and yet another lower high about the 150 day sma.

It continues to look as though Europe is going through the U.S. experience of 2008.  Now it's nation-states, before it was the core financial structure of the sole superpower with immense global reach.  Not sure which is harder to deal with!  In any case, the other structural difference from the standpoint of this American observer is that what happened in 2008 occurred at the home of the most important central bank in the world.  This European thing is different.  The Fed in theory can loan them all they need.  In this scenario in which Italy is up next and falls despite the various reassuring words out of Europe today on this topic, Treasury rates could drop to unimaginably low levels.  As in Japan, the general stock averages would get hit hard.  However, if no catastrophic "Lehman moment" occurs this time, there might be a lot of differentiation between stocks, as was the case in the major 2001-2 U.S. bear market.

In this scenario, volatility will go wild between deteriorating fundamentals and the certainty of intervention-- but when, oh when will they print, and how much and in what form?  Summer 2011 set certain modern-day records for 1% up- or down-days.  Could a rerun of some such volatility spikes be in the offing?

I am also paying no special attention to the Greek election.  Whichever party wins will be happy to have the spoils of power and will do whatever they will do.  It's impossible for an American to invest based on such unknowns and the high chance that even if Syriza wins, Tsipras will pull an Enda Kenny, who became P.M. of Ireland only to follow the bail-out course set by the previous guys.

Momentous, perilous times.

Sometimes cash is kingly. 


  1. The Euromess is going to get much, much worse.

    I completely agree with, Mr Harding from Das Daily Capitalist, that this is a geopolitical problem and it's economic issues will not be resolved in the long term.

    Under the Socialists, EuroLand is no longer competitive with the rest of the world. The rot is now visible to all.

    Unless there are dramatic changes the continent is lost.

    The world's nations should not bail them out, especially America. If we do, then it is because the Euromess threatens our financial sector.

    When this crisis simmers down, there will be short term opportunities in both Germany and Poland.

  2. Yes, Europe is a socialist mess. Central planning never worked. The social benefits promised with their system was hyper utopianism. However, the same europeanists have done great damage to the structure in the USA. I am not very optimistic about the USA economy and social cohesion.

  3. I suspect the Fed will engage in massive support to the ECB if it feels it's necessary.

    A US recession, if mild, will-- I would guess-- strain social cohesion; but the US middle class still lives so well that I think things hold together after some sturm und drang. Another 'Great Recession' is another story.

    But I claim no prescience about these matters.

  4. Trading this will be hard. Look at S&P 13 point jump over three minutes Thursday 3pm ET. On a rumor that central banks will intervien on Monday? I will take the algos over rumors any day.

  5. Uncle Milton, had predicated that the EU and the Euro would not survive the amalgamation.

    I am not sure if in fact it will happen, however, the chances are now much more likely. I see no redemption for the PIIGS and believe France will also become a weak member.

    Keep watch on this ETF, with a 3.5% dividend: it is Germany's best of the best. You will also note, that the financial sector does not dominate this fund like so many others.

    iShares MSCI Germany Index Fund (EWG) Share Price ($):19.45

  6. lives so well that I think things hold together after some sturm und drang. Another 'Great Recession' is another story.
    Stock Tips
    But I claim no prescience about these matters. Stock Market