STOCKS: The world economy is muddling through. The sequestration and continued Congressional argument regarding government closures and debt ceilings are clear headwinds to the US economy, while China is showing signs of trying to cool inflation. The Eurozone remains mired in inaction, athough showing nascent signs of growth. Quite clearly, we feel risk is being mispriced at current levels given the economic backdrop and developing pressure upon corporate revenues/margins/earnings. But, the QE pillars continue to hold prices higher than in non-QE times.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1397; and the standard 200-dma support level at 1621. But perhaps more importantly, the distance above the 160-wma has regained the +23%/+25% zone that denotes a “bubble-like rally” threshold. If it expands towards 30%, then an upside explosion may be under way.
THE LOSSES ARE UBIQUITIOUS THIS MORNING ACROSS THE WORLD: There is not one major market that has turned green for any of their sessions. They opened lower, they traded lower, they remain lower. Quite simply, the bogey-man today stems from European emanations regarding the imposition of creditor losses upon investors. This is basically the Cyprus template they are following, where losses were meted out amongst investors as well as large depositors. Germany is spearheading this European law, and could take effect as soon as January 2015….three years earlier than planned, and right in time to hit the banks exposed by the ECB tests next year. This is aptly named the “bail-in” of creditors. Germany wanted this codified given their support for pan-Europe oversight of the banking system.
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