STOCKS:
The European debt contagion has been “kicked down the road” as Spanish and Italian short-and-long term bond yields have moderated recently given the ECB “plan” to buy bonds of up to 3-years in maturity...but only if asked; and only if conditionality is imposed upon those asking. The Fed has also changed its game from “inflation-fighting” to “unemployment fighting;” and with any war — they will go further and farther than anyone believes in printing money to achieve their ends. This will support all asset prices ultimately; but not at present.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1246. The much followed 200-dma support level stands at 1380, and remains the bulls “Maginot Line.” We’ve noted this is perhaps one of the “weirdest markets” we’ve ever been a part of, and it continues to cause us a great deal of consternation. Our “initial” downside S&P target is 1338.
WORLD MARKETS ARE “MIXED” AFTER YESTERDAY’S sharp decline in the US related to US fiscal cliff concerns, and also related to growing problems in Europe with the austerity programs for Greece, Portugal and Spain. European bourses are all lower, with the northern European markets down further than the southern European bourses.
In China, where they introduced the new leadership “7” of political positions, who will in effect run China for the next five years – are most unknowns to the world. Reuters attempted to score the leadership, and they gave them 6.5 out of 10.0. We’ll write more on the new leaders in coming letters. Perhaps this announcement led to a rise of 1.9% in Japan’s NIKKEI as the new leadership may not be so strident about the Senkaku/Diaoyu Island dispute.
Moving on, the eurozone is now officially in “recession” given GDP for 3Q fell, which means two consecutive quarters of contracting economies. This isn’t surprising, but it is surprising that European bourses are still not very far off their highs – we suppose this is the new normal for Europe. Too, we find the eurozone authorities and the IMF continuing their squabble about extending the period Greece must lower its debt-to-GDP ratio.
This should go on further, for the eurozone authorities don’t want to write off any Greek debt, for that would constitute other countries monetizing their deficit; while the IMF wants to see this to keep Greece on track. We have to side with the eurozone on this matter, for Greece will be unable to get together their financial house in order for a number of years…and this simply won’t matter.
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