Friday, February 22, 2013


...or maybe three.  Things were looking pretty bad for equities the past few days and when someone asked if it was about Europe the predictable American response was, "Who cares about Europe!"  This morning consumer confidence in Germany showed a very good number and suddenly it was, "Europe looks good!  Buy!"  Right now the DOW is up 100 so maybe people do care., but "about what," is the question coupled with, "and why?"

In every battle you will be able to find an American Infantryman with this posting somewhere on his uniform; "Yea, though I walk through the Valley of Death I shall fear no evil, because I am the meanest (*&^%$ ^%$*&^ in the Valley!"  Sort of like German Consumer Confidence.  The Germans are the meanest *&^%$# *^^$##^ in Europe.  Consumer Confidence has nothing to do with economics or finances.  That doesn't trouble German consumers.  The lowest level for German Consumer Confidence was the week last year after Chelsea defeated Bayen Munchen for the title in the Champions League.  You can look it up.  But Americans love German Consumer Confidence and Europe when the former shows a bump.  Ecco, Europe # 1.

Now, Europe # 2 might be called Europe as the Euros see it.  Well, what do we have.  Starting in the south, Greece remains a mess and because of that Cyprus is, effectively, bust it through its banking system filled to the gunnels with Greek risk.  Greece will not hit their targets mandated by the EU and will need more bail-out money and it is here that the German Consumers count as they will be dead set against it (it's REALLY their money after all) and Angie does want to face reelection with the Bavarian Housefraus screaming down her neck.  If the Greeks don't get bailed out, good-buy Cyprus which gets the Russians seriously ticked because that's where they hid all their money.  Not a good show all around.

Moving north a bit, Italy has elections this weekend and results next week.  Things look awful.  Beppe the comedian looks like he might even beat out Berlusconi for second with the party of an ex-Communist winning the thing.  Now, who's in the coalition?  Nobody knows but one thing at risk is all of the fiscal and governmental advances made under Monti may well be reversed.  The yield on Italian debt is looking very shaky indeed.

I was pretty much expected that Spain and Portugal might not make their mandated debt to GDP rations but France?   Well, yeah, France.  It looks awful.  2014 at best for some and 2016 is being muttered in halls of the parliaments.  The credibility of the EU is in tatters and the ECB is caught between a rock and a hard place:  their version of QE--pick a number--has no backing anywhere.  And what the hell was the $2 billion in five year raised by Spain early this week all about?  A dollar bond for Spain?  A move to take on currency risk just to keep peoples' minds off other things?  Oh I know, "It was an attempt to open other markets..."   Right.  And a bull fight is a battle among equals.
"We are in a recession, mes amis.  We all know this except the Americans.  On our success they buy their stocks."

Finally, Perfidious Albion is sizing this thing up as a developing scenario in which to ask the British people in a referendum should we be in or out, not from the narrow standpoint of, "What's in it for me?" but simply as a life-saving measure of abandoning a sinking ship.   The Euros know that will occur and at that stage, it's probably game, set and match.

Europe # 3 can be called, "Europe as Mrs. James' little boy, Charlie sees it."   It has the capacity to be the disaster of the year from not only its own standpoint but from our standpoint as well and it seems to me that nobody, certainly nobody in the administration is paying very much attention at least at this stage which is understandable given the mess we have created for ourselves.  Despite unprecedented buying by the Fed, the yield on our 10 year has moved from the third quarter to today from 1.75% to 2.01%.  With the type of intervention we have been witnessing, that is not insignificant.  It's not the end of the world either, but it is the first clear sign that all is not as calm in capital markets land as we have been told.  Should we see a spike in Euro yields as I think we will not only in the southern tier but for France as well, we may not be the safe haven we have been or at least not at the same level.  As we have seen, markets move in fits and starts but at some point everyone has the same idea and that's when the trouble starts.  The sequester is meaningless from a fiscal standpoint but very important from how the markets react.  Before The Leader fully decides to extract maximum political gain, he should stop and think of this not only from a domestic standpoint but from the European aspect where I believe things are on more of a hair trigger than people realize.  We talked ourselves into a nether-world complacency over the past few months.  There is a growing chance that we are going to get caught out again.

Sorry about yesterday...I was trying to get this piece put together.  Have a good weekend.

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