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Saturday, March 2, 2024

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Manic Tuesday – Greece is the Word!

Greece is fixed!  

Yeah, that's right – I'm going to get on the bandwagon after commenting in Member Chat at 2am that I thought the "fix" was total BS – with Portugal, Ireland and Greece looking like the coyote before he realizes he's run off the cliff.  That led us to conclude that oil would be a good short off the $101.50 line.  Well, it was and fell to $100 but now it's back to $102.50 pre-market, up almost 2% from Friday's close for no reason at all other than the Dollar, which just gets weaker and weaker and weaker and weaker based on the extend and pretend policies employed by the EU and Japan – it's ridiculous but what are we going to do about it?  

Obviously, we just short oil again at $102.50, you don't have to be one of our Members to know we're doing that but now it's a quarter here and a quarter there while the upside madness continues.  Our indexes are up almost 1% as well, which is great for our FAS bets but bad for EDZ.  Of course we tried to be more or less balanced into the weekend but the bias was short because things seemed destined to fall apart but, at 8:30 last night, we got this story:  

The WSJ reports Germany, just wanting to get a deal inked, is dropping – for now – its push for restructuring in which private investors would bear losses on their Greek debt holdings. The move is a victory for the ECB, which had threatened the nuclear option if even the slightest restructuring were allowed. The euro and stock index futures shoot higher. 

That was enough to spark a massive futures rally as the Euro, Pound and Yen all flew up against the Dollar and the 3am Trade took care of the rest with the Dollar testing the 74.50 line this morning.  Bad currency!  Bad, bad, bad Dollar!  Down boy….  The Nikkei flew up 2% this morning and that was exceeded by the Hang Seng, which gained 2.16% on a 100-point gap up at the open, followed by a flatline through lunch but then a 250-point gain in the last hour of trading.  This was so exciting that the Shanghai even had its first positive day on 2 weeks, gaining 40 points after lunch (1.4%) in a spectacular move that could not have gone better if it were centrally planned.  

In Europe, the police were able to push back the protesters for another weekend so everything is great as far as the top 10% are concerned (and what else could possibly matter?) and German markets are up 2% this morning with France up 1.6% and the UK up 1% (7:30).  In Barcelona, police fired rubber bullets and used their batons to break up a rally in Central Square.  "We are not going! We are not going!" the crowd chanted on Sunday night, raising their hands in a vote to remain on the square.  They set no date to pack up their tents, defying the local authorities and businesses who have urged them to go.  Spain's unemployment rate is the highest in the EU, at 21.3%. For the under-25s, it has risen to 44.6%.  

Spain is, of course, the largest of the PIIGS and the one everyone likes to pretend is fine because the prospect of bailing our Spain's $1.5Tn economy is nerve-wracking compared to Greece's $300Bn economy  or Portugal's $230Bn economy – even for Germany ($3.2Tn).  Spain's Current Account Deficit hit $25.3Bn in Q1, up 8% from last year and their trade deficit grew to $12Bn from $11Bn, mainly due to high energy costs but don't worry – everything is great in the Fatherland as German unemployment hit new lows, with less than 3M of Germany's 82M people unemployed (vs 13.7M in the US out of 300M people – NOT including the 85M eligible American workers (the ENTIRE population of Germany) who are considered "not in the labor force" by the BLS, who are not counted as unemployed).  

Spain's protesters are calling themselves "los indignados" [the indignant] and "15-M" and they are demanding jobs, better living standards, a fairer system of democracy and changes to the centre-left Socialist government's austerity plans.  America's 85-M are demanding a new season of "The Biggest Loser" and, of course, that super-sizing their fries remains under 50 cents.  

Thousands of protesters are also camping out in the cities of Seville, Valencia and Logrono. But in Toledo, protesters have decided to pack up a similar tent city and leave.  On Sunday night, police in Paris dismantled tents erected by protesters in Place de la Bastille who gathered to show their solidarity with the Spanish protesters.  The Greeks are past protesting and have been running on/to the banks to withdraw their money, with 1.5Bn Euros withdrawn last Thursday and Friday alone vs. 2Bn in withdrawals the entire month of April.  The majority of depositors rushed to withdraw for pensioners and small savers and amounts ranging from 2-3000 lifted until 10 -15 000 euros. Motivation in most cases it was the fear that led the country into bankruptcy, deposits frozen even temporarily left without cash, or even lose their savings.

Canada's Finance Minister, Jim Flaherty fears the world could be faced with another recession, given the fragility of the global economy and especially the troublesome debt and deficit situation across the border. “I am quite worried,” Mr. Flaherty told CTV’s Question Period Sunday. “We have lived three-and-a-half years now since the credit crisis started in late August, 2007. We are seeing in Europe, in particular, some very difficult situations.”

Perhaps the Greeks and Canadians should put their money in Chinese banks, which are hurting for capital as a credit squeeze drives yields towards a 17-month high on the Mainland.  The weighted average lending rate on bank loans rose to 6.91 percent in March, 60 basis points higher than the one-year benchmark and 260 basis points above the yields of AAA-rated corporate bonds for the same maturity. The premium investors demand to hold five-year corporate notes instead of sovereign debt reached 166 basis points on May 25, near the high of 169 in March.

"Corporate demand for capital has far exceeded banks' lending capacity this year, so for most companies bond financing becomes the only viable alternative," said Wu Haiwen, a Shanghai-based fixed-income analyst at Shanghai Pudong Development Co. "That's bad news for the market. We expect the yield spread between top-rated corporate bond and government debt to widen."

China's June CPI is expected to hit about 5.7% when the data is released and that will supposedly lead to a rate hike and this speculation is also working to keep the Dollar down.  China's inflation can't be curbed unless it maintains a prudent monetary policy, citing former deputy central bank governor Wu Xiaoling said. "The market" has been calling for a looser monetary policy because of concerns about risks of a hard-landing in China, he said.  Meanwhile, Beijing's existing home sales may fall to a 28-month low in May, citing data from the city's government-run property transaction website. About 7,190 existing homes were sold from May 1 to May 29, a decline of 47% from the same period a year earlier.    

Moody's has placed Japan's Aa2 rating on review for a downgrade, pointing to the possibility of a Japan Government Bond funding crisis – very possibly brought on by a ratings downgrade…  Reasons cited were the same ones we've been talking about since March, such as:  the much larger than initially expected economic and fiscal costs of the March 11 earthquake, concern that the policy framework will continue to fall short of achieving deficit reduction on a timely basis and the vulnerability of a long-term fiscal consolidation strategy to worsening domestic demographic pressures, as well as to possible, renewed shocks in a fragile and uncertain, post-crisis global economic environment.  

Gosh, really?  I wonder if this means that the Yen's 18% run-up since last May should be considered a bit frothy then?  I mean, really people, I don't want to be coming on all doom and gloom but SOMEONE needs to counterbalance the insanely happy reporting from the MSM as they "fix" things every Monday (Tuesday this week) only to have it all turn out not to be fixed by Wednesday again.  We're still working to get back to our February high on the S&P at 1,343.

Still, in an idiotic, technically-driven market that is completely ignoring the fundamentals – we do have to respect the technicals and go with the flow – even when that flow is clearly heading over a large cliff…  We'll see what sticks and we will watch our levels closely but holding 3 of 5 of our major indexes over the 2.5% line is going to be bullish – no matter how screwed up the World actually is.  Just keep reality in the back of your mind – kind of like the escape instructions on an airplane – so we'll know where the exits are and what to do when it ultimately, inevitably, hits the fan.  

Keep in mind that today is the last day of the month and we started the month above 1,360 on the S&P and we were at 1,330 yesterday so 2.25% away from having a flat month that the funds can hawk to bring in more retail suckers.  We'll be rolling our short positions today and we'll be screwed tomorrow if there is follow-through but very happy if this all turns out to be window dressing.  Obviously, if they pop our technicals, we may have second thoughts but I still think it's all nonsense despite the 1% pop in the futures with just 30 minutes to the open. 

We got a great NY ISM Report this morning at 67.9 vs 56.9 in April but that was offset by a -0.9% reading for the April Chicago Midwest Manufacturing Index, now at 83.6 with 2007 as the benchmark 100.  Hey – that's just down 16.1% in 4 years – we have 83.6% left to go before we have no manufacturing at all in America!  

Holy cow!  Oil just spiked up to $103.39 at the NYMEX open at 9am despite the fact that Saudi Prince Alwaleed just said they are targeting $70-$80 a barrel.  “We don’t want the West to go and find alternatives,” Alwaleed, a nephew of Saudi King Abdullah, said in an interview on CNN’s “Fareed Zakaria GPS.”  “The higher the price of oil goes, the more they have incentives to go and find alternatives.”  The rebellion in Libya, political turmoil in Bahrain and speculative buying are responsible for driving oil prices to more than $100 a barrel, Alwaleed said.  Amazingly, this does not seem to be deterring the NYMEX pump crew in the least as they paint the tape on the last trading day of their month as well.  

While Americans are apparently able to pay infinite amounts of money for gas, we still can't find a price they are willing to pay for homes as this morning's Case-Shiller Survey shows home prices in the 20-city index falling ANOTHER 3.6% from March to a brand new 8-year low.  Nationally, prices decreased 5.1 percent in the first quarter from the same time in 2010, and were down 4.2 percent from the previous three months, the biggest one-quarter decrease since the first three months of 2009. At 125.41, the index was the lowest since the second quarter of 2002.  

Could this news be so bad it's good?  The markets seem to be acting that way and, if anything, have gone up since the report.  Keep in mind that this is our economy WITH Trillions of Dollars of POMO and bailouts – we don't even want to think about what could happen if the Fed actually stops propping it up, do we?  Still, despite my best efforts to be all sunshine and lollipops, I'm going to have to continue to urge caution and we'll have to wait until tomorrow to see if any of this is real or just end-of-month window dressing.



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