It’s like a magician’s illusion; the audience’s focus is drawn one direction while the magician disappears in the opposite direction. While the investors were watching the continued debt saga of the eurozone and in one giant misdirection the headlines of the papers glared about the huge increase in US retails sales on Black Friday a day to remember shattering all records with retails sales increases over 6%. Consumers were spending, retailers were turning profit and on this quiet peaceful Thanksgiving Holiday little was anyone focused on the week’s woes and problems.
Thanksgiving week is traditionally a very quiet week for investors, many taking vacations and the markets are closed on Thursday and only have a partial day on Friday. Global markets are also quiet in response to US markets being dark. Contrary to tradition, this year, many traders and investors were desks or in front of their computers trying to decipher and analyze the data and reports of the previous week. The last minute employment figures out of the US were promising but the increase in bond yields for Italy, Spain and Greece continued to send negative signals. In response to the failed bank agreement between Belgium and France, came an unexpected downgrade on Belgium debt from Standard and Poor’s. Belgium is a very small economy one that goes unnoticed, but also one that was never calculated in the European debt equation.
This was the tipping point, after the failed German bund sale last week and the increase on German long term bunds to 2%, all the markets were worried. The final straw seemed to be the downgrade of Belgium. Investors fled European markets as fast as they could. For a while, it was thought that Europe would be leaders in the economic turnaround. With Germany and France leading the world back from the economic abyss. But no longer, quiet whispers have been heard about France’s economy and debt and reduced GDP. . European banks are afraid to lend money to each other. The Libor spread, reflecting the gap between rates the banks charge each other and market expectations, rose to 0.41%, its highest level in two years. Combine this with nearly a 5% drop in the Dow Jones and the euro in free fall investors have spent the weekend fleeing Europe. Pulling out all the stops. No one has any doubts that the crisis in the eurozone will be the pace setter for worldwide slowdown. Investments are being funneled into a handful of assets thought right now to be a bit safer, like bonds from the United States and countries without debt, and traditional safe-haven currencies like the dollar and there is always the safety of Gold.
What do the markets have in store for us when they open Monday?