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Daily State of the Markets Good morning. Here we go again. While I’m not sure exactly how many times we’ve done this dance before, it looks as if the European leaders have come up with the latest and greatest plan to save the day. Just when investors appear to have given up hope and that stock prices around the globe are about to get a lot worse than they already are (if Friday’s dive in the major indices didn’t spell out this idea then the record low in bond and bund yields, the spike in the UUP (U.S. dollar) and the GLD (gold etf), as well as the ongoing fall in commodity prices such as USO (oil) and JJC (copper) should have), it appears that the EU and ECB are hatching a plan designed to put an end to the Eurozone’s debt crisis. And yes, once again, they really mean it this time. On Sunday, Bloomberg noted that the German newspaper Welt-am-Sonntag, citing unidentified ECB and EU officials, reported the ECB and EU are developing a “master plan” designed to strengthen the Eurozone. The article said that the plan includes proposals related to budget policy integration, the creation of a banking union and the establishment of a political union to promote common structural reforms. In short, developing The United States of Europe appears to be the plan. Even Germany seems to be onboard with the idea – and why wouldn’t they since Germany is the largest and strongest economy in the Eurozone and thus likely to wield the most power in the new fiscal union. And although Germans are known for being a tad stubborn, this seems to be why Angela Merkel continues to just say “nein” to any other proposals that have come along. The Germans seem to think that just printing money to cover debts of nations that spent irresponsibly (and want to continue to do so) may not be the best solution to the crisis going forward. Imagine that. While turning the loosely structured EU into The United States of Europe sounds like a great idea – and frankly, the plan might just be the ticket to fixing the debt mess across the pond – it does mean that everybody wanting to play in the new Eurozone game will have to give up thousands of years of sovereignty. Oh, and then there’s the fact that Germany will basically run the show going forward. The point of this morning’s meandering missive isn’t to offer an opinion on a plan that has yet to be introduced but rather to point out that the dance we’ve been seeing in the markets for three years now is ongoing. Here are the steps: First, markets freak out over the potential for a “Lehman moment” in Europe and the idea that the global banking system could collapse if such an event were to occur. This time it is the “run” on Greek and Spanish banks that appear to be causing people to wonder how the current debacle is going to play out. Next, there is a plethora (i.e. a whole bunch) of reports/rumors/headlines/discussion about the “grand plan” that will surely fix the problem. (And for the record, the problem remains too much debt, not enough income, and no ability to borrow any more money.) The latest and greatest grand plan brings has tended to bring the hope that this time it will be different and that the Eurozone debt crisis will finally cease to command investors’ attention on a daily basis. This hope, of course, causes shorts to cover in frantic fashion and stocks to rally furiously. Investors return to the SSO’s, the UPRO’s, the commodities (DBC), and the double long emerging market ETF’s (EET). And after some bottom fishing and all the chatter about the great values the latest decline has created, stock market investors are able to breathe a sigh of relief. However, the next step in the dance isn’t really a step at all as little tends to come of the latest and greatest grand plan. First there was the realization that fixing a debt problem with more debt doesn’t work. Then everybody figured out that smoke and mirrors wouldn’t fly this time. Then there was the ‘fiscal compact’ that didn’t really have any teeth. And now… Thus, the question of the day (well, for me anyway) is if traders and their fancy computers will continue to dance on the latest “master plan.” While a true “fiscal union” would make sense and might actually be the answer, it seems that such a dramatic move might be tough to implement anytime soon. And unless investors (and savers in Europe) can be convinced that there is nothing to fear with a USofE on the way, the dance is likely to continue. Turning to this morning… European markets and U.S. Futures have made a stunning reversal this morning apparently in response to a WSJ report that Angela Merkel may be softening her stance on Eurobonds. However, it should be noted that Merkel will require that a fiscal union be created before any type of joint bonds could be issued. So, with traders covering shorts and futures now pointing to a modestly positive open on Wall Street, it is clear that the dance continues today. On the Economic front… We will get the report on Factory Orders at 10:00 am. Thought for the day… “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” — Sir John Templeton Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: none For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com !========> The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. !========> |
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