On Monday we noted the cheeky tweet sent out by House speaker, John Boehner, asking where were the President’s spending cuts. We just received this through a robo e-mail from Obama for America.
We’re starting sense the Kumbaya good feelings are going to fade soon as the hard ball negotiations begin. Entering debt detox is not going to be easy, folks.
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Amazing how the e-mini S&Ps can trade down over 10 points on a technical delay in the Greek debt deal. Anybody who has worked on restructurings know these are very difficult issues to hammer out, especially with so many parties at the table.
Seriously, with Merkel up for reelection is there even a remote possibility she will let Greece crater and potentially blow up the Eurozone? She may have trouble selling debt relief to her constituency, but, in our opinion, there is no way this thing blows.
Here is part of the statement by the Eurogroup President, Jean-Claude Juncker, which, actually, for the first time we can recall, praises Greece’s reform efforts,
The Eurogroup noted with satisfaction that all prior actions required ahead of this meeting have been met in a satisfactory manner. This reflects a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy for 2013-16. These efforts demonstrate the authorities’ strong commitment to the adjustment programme.
The Eurogroup commended the considerable efforts made by the Greek authorities and citizens to reach this stage.
So the hangup is not over whether there will be a deal, but what type and how much debt relief Greece will be granted by the official sector. That is, how long will maturities be extended and what will be the haircut on interest rates. Will the debt relief be phased in and conditional on Greece staying in their economic program? These issues take time to debate, come to a consensus, and then translated into a head of terms.
Can the politics get away? Absolutely, and that’s the big risk and especially true for the European/Greek street. Less so with the EU policymakers, however.
By the way, the better the official sector deal for Greece, the better for Greek private sector bonds.
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We wanted to update our table S&P500 returns post presidential elections. As illustrated, the returns are relatively positive. This is especially true if the swan years of 2000, the contested election, and 2008, during the financial collapse are excluded. Of course, in none of these years was the stock market peering down the side of a fiscal cliff.
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The Shanghai Composite made a new low in Monday’s trading. The country’s uber bear market seems to have slipped under traders’ radars as global markets obsess over the U.S. fiscal cliff.
At the lows on Monday, the Shanghai Composite was down 67.41 percent from its October 2007 high. This gives new meaning to the term “shitting BRICs.”
Wow! Cramer thinks China is turning. Double bottom? Gotta hold Monday’s low. Stay tuned.
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This downgrade does not raise a question-mark over the fundamental economics of our country, nor the reforms undertaken by the government, nor our good reputation for borrowing.
– Pierre Moscovici, French finance minister
France’s 10-year government sovereign spread to the German bund closed the day 1 bps tighter for the week at 73 bps. This is down from 151 bps where it traded in the first week of January.
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Bernanke speaks. Stocks tank. Buyers step in. Market closes unched.
Stocks got spanked during Chairman Bernanke’s speech to the New York Economic Club but managed to claw back losses, to close, essentially, unchanged. Bonds and gold got whacked on possible perceptions the Chairman was hinting that monetary policy may change sooner than expected due to the Fed’s downgrading of potential growth,
The accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years…the fact that unemployment has declined in recent years despite economic growth at about 2 percent suggests that the growth rate of potential output must have recently been lower than the roughly 2-1/2 percent rate that appeared to be in place before the crisis.
A lower growth potential would equate to less stimulus induced aggregate demand to maintain price stability.
Nevertheless, the market’s resilience was impressive on a relatively low volume day. The S&P500 traded down through its 200-day moving average at 1382.7 to around 1377 and was able to bounce 1o points to close at 1387.81, up about a point on the day. Financials and consumer discretionary outperformed. Apple, after yesterday’s 7 plus percent move, gave back only about 1 percent. Not bad.
What would a real fiscal cliff panic look like?
Stocks down hard; Russell 2000 down harder; consumer discretionary down hard; gold up; dollar down; VIX spiking; and defense stocks in the tank.
Bonds? Tough to extract a clear signal with the Fed’s financial repression, but, initially, the cowboys would most likely be in buying on recession fears and increased worries about going over the cliff.
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http://www.euronews.com/ The credit ratings agency Moody’s has stripped France of its prized triple A rating, cutting it by one notch to AA1. The agency said an uncertain fiscal outlook and a deteriorating economy were behind the decision for the downgrade in Europe’s second biggest economy. It follows a cut by Standard and Poors in January.
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..in complex systems, we should limit government (and other) interventions to important matters: The state should be there for emergency-room surgery, not nanny-style maintenance and overmedication of the patient—and it should get better at the former.
– Nassim Nicholas Taleb, WSJ
Learning to Love Volatility – November 16, 2012
No politician, no cry.
The President is out of country and Congress is not in session. Though Speaker Boehner tweeted a cheeky remark about where’s the President’s spending cuts, all was quiet at the edge of the fiscal cliff. We do share his concerns.
As we suspected on Friday, the market followed through with an impressive up move. Apple led the market with a more than 7 percent move higher. The S&P5oo (SPY) closed 1.78 percent higher and the Russell 2000, once again, outperformed. Looks like the big bounces were in those most oversold.
The VIX is now down over 13 percent since the election. Gold is starting to move on the back of QEternity coming to Japan and expectations the Fed will move with more QE to offset the coming fiscal drag in the U.S.. Watch gold’s 50-day moving average at 1741, which has been resistance. We’ll buy on the breakout.
We don’t know how long this good feeling will last. The seasonals are positive but hardball negotiations have yet to begin. We also sense the market wants a decent deal and will sell hard and turn a can kicker into a real ass kicker. Stay tuned.
What would a real fiscal cliff panic look like?
Stocks down hard; Russell 2000 down harder; consumer discretionary down hard; gold up; dollar down; VIX spiking; and defense stocks in the tank.
Bonds? Tough to extract a clear signal with the Fed’s financial repression, but, initially, the cowboys would most likely be in buying on recession fears and increased worries about going over the cliff.
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Apple confirmed its Friday hammer panic bottom with a $38 plus move higher, closing up 7.21 percent on the day. Nice!
How big was the move? BIG!
Apple’s $35.8 billion market cap increase on the day is larger than the total market cap of all but 146 listed public companies. At the high of the day, Apple’s change in market value was larger than the entire market cap of Starbucks and almost as large as Dupont and Deustche Bank. If ranked as a country GDP, the increase in market cap is larger than 97 of the 186 economies monitored by the IMF. Stunning!
Where to now? We don’t know with certainty, but, after consolidating this big move, it looks like the 200-day at $596 is doable, Always with a stop!
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Global Macro Monitor 