It’s All In The Numbers

Is this the equation to save the Euro or to for the destruction of the Eurozone ?

 (Greece + Itay + Spain) + (Ireland + Portugal + Belgium )/ Germany + France =ECB + IMF (Russia + China + Mexico + USA) 

With the prospect of defaults by Greece, and the more remote potential of losses on debt from Italy, Spain, Portugal and Ireland, the banks will deplete the capital they have and will need to raise more. Italy’s debt is the largest, at about 1.8 trillion euros ($2.6 trillion) is five times larger than what Greece owes.

The last issue is how much money should be added to the existing European Financial Stability Facility, which would provide backup borrowing authority to support eurozone countries. There is broad agreement that the existing 440 billion euro fund is too small.

Greece’s creditors may be forced to write off as much as 60% of its 329 billion-euro ($458 billion) debt.

Across the continent, Ireland’s Brian Lenihan’s presented the 2011 Budget this past week; he stated that there will be budget deficit of €17.7bn and public debt/GDP ratio at 99% plus economic output. The Irish government is going to begin a period of “austerity” to try to handle this deficit internally after having already taken a bailout from the EU.

It’s All In The Numbers

 

Irish Debt

Back to Europe, Belguim’s bond yields have soars on their banking problems. There is a possibility that they may be facing some difficult times.

 

Dexia, a bank specializing in local government financing, has had its Belgian arm bought by the country’s government, with Belgium, France and Luxembourg in a €90bn guarantee. It’s the first lender to fall victim to the eurozone crisis

European officials began scrambling to find ways to lend financial aid to Portugal on Thursday after the debt-ridden Iberian nation bowed to market pressure and decided it had no choice but to ask for help.

Raising taxes and selling stakes in some of the country’s biggest companies to comply with the terms of the 78 billion-euro ($105 billion) aid package.

The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds reached a euro- era record of 10.78 percentage points on July 12 and was at 10.23 points yesterday, double the 5.11 points when former Prime Minister Jose Socrates sought the rescue on April 6.

The 10-year bond yield was at 12.03 percent up from 10.14 percent at the start of this month amid concern among investors about contagion from a potential Greek default.

The question is just how much can the EU afford, how much can the EU raise or leverage, conservative estimate estimates are place at 1.3 trillion dollars with leverage. The IMF emergency funds are below 400 billion euros. How much will Germany and France absorb? How will they survive if their borrowing rates soar?

Can Sarkozy and Merkel, reach an agreement this week with EU leaders and the ECB and the IMF. December 9th is D-day.

Cultural Differences Between France and Germany

The European Union is an amazing attempt at merge many governments and economies that are not only seperated by religion, politics and social reforms, but also by cultural differnces. All 17 members of the Euro agree there are major economic and political pressures facing each individual government. They all agree that radical changes need to be instituted. They all agree that they need to help the countries facing economic problems. They all agree that each country should maintain independence. They all agree that they need to work together for the common good. They all agree that government debt must be lowered, government services need to be move to private sectors. They all agree they need to be competitive in the global markets.

What they can not agree on is how ?

The problems facing the EU is as old as the problems in the middle east. The cultural differences, the way the people think and the way they deal with issues.

Split Decision

Germany and France still divided on healing euro woes

Merkel

Wants automatic sanctions against budget sinners

  • Rejects issuing euro bonds to help alleviate crisis

Sarkozy

  • Grudgingly accepts ‘more automatic’ sanctions
  • Favors issuing euro bonds to protect market access

The Arabs and the Nomads, the Christians and the Jews, the Islamics and the Secular have been fighting for years, the reason that peace is not easily obtainable is because they view the problems and the solutions differently because of their culture and history. Palestine and Israel will most never find peace, not because the people actually hate each other, not because the sides want war and not because of land, it is their cultural difference, it is their viewpoint and their perspective that is different.

This has become very evident recently in the battle between President Sakozy and Chancellor Merkel. They can ageed on the problems, they can agree on the solutions, but when it comes to the fine points and the decisions, they bump heads.

Surrendering sovereign powers, including the Parliament’s mastery of the budget process, would amount to a risky political gamble for Mr. Sarkozy five months ahead of France’s presidential election next spring. For its part, France has insisted that deeper integration also should yield increased solidarity.

The chancellor wants to focus on what she sees as the root causes of the crisis by creating a long-term regime of fiscal discipline, while changing the European Union’s treaty to give European authorities new powers of enforcement.

In a speech to Germany’s parliament on Friday, she warned that euro members would have to accept a loss of national sovereignty, and that there is no quick fix to the crisis.

In the past week, we have heard from the President of the ECB, from the Director of the IMF, from Chairman of the Bank of England. Everyone is prepared to assist to find solutions and offer assistance. The IMF was able to get pledges from most of the G20 nations. China has decided to assist the IMF. Central Banks from around the globe joined forces this week to aid the EU banks to maintain liquidity until the December 9the EU summit.

Towards the end of the week, there was rumor and announcements, statements and press that Merkel and Sarkozy were able to find a path. David Cameron from the UK met with the leaders on Friday and insisted that they find a way to resolve the EU debt crisis. And to discuss the possiblitly of rewriting the EU treaty that covers each country as a member of the EU. Mr. Cameron was there to represent the UK and other nations that are part of the EU but are not part of euro currency, to make sure they were not pushed to second place. There are pressures on the EU from all directions.

But the most powerful leaders of the EU are still at odds. On Friday Chancellor Merkels speech and the statements from President Sarkozy seemed to take almost opposite positions.

On Monday the markets will react to this new uncertainty. Markets soared from midweek on the news of agreements, understanding and road-maps. But it seems that the news was premature, as the IMF and the ECB can not act without the EU.

This is plan number 12.. its their last chance to get things right.

 

 

The Great Wall of China Is Dropping In Value

The Peoples Bank of China PBoC today said that property values in China have topped out and those they are in a slow decline. For many years the wealth of successful Chinese businessman, investors and multifaceted business has been compounded with the huge increase in the property markets. Most of the new “billionaires” of China have made their fortunes in Real Estate. Many have started out as successful business and used their profits to buy up real estate which generated unheard of increases.

In a statement summarizing a recent meeting between the People’s Bank of China and property and banking industry executives, the PBOC said real-estate developers’ cash flows have become tighter, while growth in property loans has slowed.

“A turning point for property prices has emerged,” the PBOC said, citing the conclusions of two of its reports discussed at the meeting.

The central bank’s statement comes after signs that China’s stubbornly high property prices are finally declining after a nearly two-year-long tightening campaign by the government.

Most of the inflation in China has been driven by the housing market. The PBoC is hoping to see price declines of up to 20%. Investors and Developers are afraid that price drops that radical might cause many investors to dump their property and cause additional price declines.

Beijing’s property policy is being closely followed by investors and observers, especially after the central bank surprised the market Wednesday with an earlier-than-expected decision to cut banks’ reserve requirements, the first such cut in nearly three years.

That latest monetary easing has been interpreted by market watchers as a clear signal that Beijing has decisively shifted its policy priority toward stimulating economic growth from combating inflation, even at the risk of reigniting a property bubble.

Reflecting the government’s intention to slow a U-turn in the property policy, the official People’s Newspaper said Thursday China’s latest easing measure is meant to aid the liquidity situation for the overall economy and isn’t aimed at the housing sector.

Earlier this week, the PBoC lowered the reserve requirement ratio for Chinese banks by 50 basis points, down to 21% for large banks, freeing up an estimated $63 billion in new lending.

The move is being described as a “surprise,” mainly because the PBOC and several top government officials have spent the last month adamantly asserting that China was committed to its policy of continued tightening, in order to rein in inflation and asset bubbles.  The reason such repeated denials were necessary was that the PBoC clearly was coming under immense pressure to loosen lending to local governments who have been warning that, they would not be able to make enough investments to achieve their GDP targets for 2012, and the overextended property developers were running out of the credit needed to continue financing their unsold inventories, which they had begun dumping onto the market to avoid the declining prices. The government needed to throw endangered parties a credit lifeline at the same time as they continue to push down housing prices and curb inflation.

A BIT OF A PLAN FROM THE ECB… but not the ROADMAP that was PROMISED

A week or so ago European Central Bank President Mario Draghi, assured the world that he would have a “roadmap” prepared and ready to present at the December 9th meeting of the EU. Yesterday, Draghi, began to release some of the details to assure the markets and the politicians that the ECB was taking positive action to resolve the issues facing Europe. Yesterday, simultaneously David Cameron was meeting with Sarkozy and Merkel, to pressure them on several matters. One was to reiterate the need for decisions and guidance, no more talks and meetings. He also stressed the need for austerity measures; just bailing out countries would not help Europe. Good budgeting and good finances are required. Cameron also was in serious talks regarding new policies and requirements that the EU would be placing on member states. Cameron wants to make sure that the UK is not given a second seat to France and Germany.

The Central Bank President only assumed his role last month and this is his first appearance and public statement. He called on euro-zone governments to quickly craft a “new fiscal compact,” calling it “the most important element to start restoring credibility.” He added that “other elements might follow, but the sequencing matters.”

“There cannot be a single currency without economic convergence,” he said in the southern French city of Toulon. “Or the euro zone will explode.”

Mario has come intense pressure from politicians to commit to massive purchases of government bonds in order to stabilize yields and give governments time to enact convincing deficit reduction. The ECB bond purchases can bring down countries’ borrowing costs, making it easier for governments to refinance debt.

The European Central Bank so far has resisted the pressure, keeping purchases in the €5 billion to €10 billion ($6.7 billion to $13.4 billion) range each week. This has been enough to keep the borrowing costs of Italy and others from spiraling out of control. Bond yields in country after country, not only the debt-plagued nations on Europe’s southern periphery, have been hitting.

Mr. Draghi stopped short of promising unlimited purchases of euro-zone bonds, as a number of European policy makers have recently demanded, but his comments nevertheless raised the prospect that the ECB is willing to do significantly more.

France and Germany, and euro-zone nations are working on new rules that would make budget discipline binding and enforceable by European authorities—possibly shortcutting the laborious and uncertain process of amending existing treaties. ECB officials welcomed the emergence of such a plan over the weekend, saying it would address “moral hazard” concerns.

Despite Mr. Sarkozy’s statements Thursday, there is still disagreement on how far to go—including between him and Chancellor Merkel. Economists said Mr. Sarkozy’s specific proposals may fall short of Germany’s demands for full fiscal submission to a euro-zone budget supervisor.

Convergence – Divergence and Insurgents

Christine Lagarde, President of the IMF, indicated yesterday that the G-20 countries we willing to come to the aid of the EU to increase the funding to the IMF. Currently, the IMF has 390 billion euros available in their emergency fund, which would most likely not be enough to assist the ailing economies of EU regardless of the leveraging power of the EFSF. Lagarde, indicated that the BRIC nations, which are made up of Brazil, Russia, India and China were willing to increase their funding to the IMF. The BRIC nations have been updated to become BRICS, which now includes South Africa. Lagarde, also noted that Latin America, specifically Mexico were also willing to increase funds. Lagarde, did not indicate the amounts promised or discussed. She is currently in meeting throughout South America. This is the first mention during the turmoil of aid from Russia.

While Lagarde, is pushing the G20 and the IMF to develop plans to assist Europe. The Europe leaders met with their counterpart from England yesterday, where David Cameron told the EU leaders that it was time for some direct action and final commitment and plans.

At the same time that Cameron was meeting with Sarkozy and Merkel, BoE director King, was admonishing UK bankers, to increase capital and to reduce their bonuses. King is trying to keep a tight rein on the bankers.

Recently, economists and financial experts as well as investors have been reviewing the tentative plans for the EFSF, and many have drawn the conclusion that although these European Bonds will help raise the funds necessary to assist the ailing economies of the EU, that the final effect will be an increase in borrowing costs for countries such as Germany and France who have low bond rates and will reduce the interest paid by countries such as Italy, Spain, and Greece. It will end up being a weighted average bond. This will help those with high borrowing rates but cause a damaging effect to those with strong economies. Investors have been playing the game, buying up high yield bonds in the hopes that they will not have to take a haircut and will have the bonds backed by the EU or the economies saved by the EU and therefore make huge profits.

The markets have adjusted to the reality that they were reacting to news and not improvements in business and economics. News can only sustain markets for a short period of time, between the Ups and Downs, but news alone cannot drive the markets without the achieving real economic improvement. This past week has demonstrated just how much rumor and news can move markets. The week started off with Black Friday, moved to Cyber Monday, moved to rumor Tuesday (IMF assistance to Italy) and continued on to Central Banks Coordinated Effort Wednesday. By Thursday, investors were exhausted and stressed from chasing markets and news. Markets retracted slightly, while they took the time to digest the week’s news.

Friday is still to play out.

Shifts in the USA… Oil Exporter, Increased Factory Orders, Slow Jobs Growth

Data released by the U.S. Energy Information Administration this week shows the U.S. sent exported 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels. The US is slowly becoming an energy exporter, the recession and high unemployment have kept a lot of cars off the roads and factories have been using less fuel. Lower airline travels has reduced the amount of jet fuel and reduced manufacturing has aided the reduction in gasoline and diesel usage.

With America becoming green, and conserving and a slow shift to alternative energy sources, the USA is consuming less fossil fuel and with increased exploration and production, the States are exporting more than they are importing.

This helps the US economy in many ways, the US will no longer be subject to oil price hikes and dependant on foreign suppliers, moving to an exporter this will help the US balance of payments and the GDP.

U.S. exports of fossil fuel are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.

U.S. factories grew last month at the fastest pace since June, helped by a jump in new orders and production. Manufacturing has grown for 28 straight months, according to the index. Factories were among the first businesses to start growing after the recession officially ended in June 2009.

Factories added workers last month, but at a slower pace than the previous month.

U.S. factories are benefiting from higher auto sales. That has boosted output by automakers and companies that supply parts and raw materials, such as steel. Still, manufacturers could face strains overseas in key export markets. Europe is struggling with its financial crisis and China’s growth has slowed.

The Labor Department said the number of people who applied for unemployment benefits last week rose above 400,000 for the first time in four weeks. The figures suggest the hiring market is recovering at a slow and uneven pace. The projected job growth in November would be an improvement from the previous month, when the economy added just 80,000 jobs. Still, 125,000 new jobs are barely enough to keep pace with population growth.

Some economists are more optimistic after payroll provider ADP said Wednesday that companies added 206,000 workers last month, the most this year. That survey doesn’t include government agencies, which have been cutting jobs.

 

The EU turns to the IMF

In a surprise turn around, EU finance ministers are turning to the IMF for assistance with the growing debt problems throughout the eurozone.

EU leaders have been meeting and are in discussion on how to use the European Financial Stability Facility. The massive amount of money needed to bail out Italy, Spain, Greece and possibly Belgium is a staggering sum which cannot be raised by the 17 eurozone countries without using leverage to extend the reach of the facility. This also exposes the EU to much larger losses and the fears that it might not be enough to stop the contagion or leave a cushion if other countries need bailouts. European leaders said the fund could be increased to as much as €1 trillion as a result of the leverage scheme, which involves partially insuring government bonds and creating special investment vehicles to attract capital from private sector investors.

Analysts say the amount is closer to €750 billion, since the EFSF has only about €250 billion that is not already earmarked. The International Monetary Fund which measures its funds in a basket of currencies and has about $390 billion to work with.

That compares with an estimated €2 trillion in funding needs for the most troubled euro area economies, including Italy and Spain.

Beyond the lack of sufficient funds, there are serious questions about how much risk the IMF would assume if it began intervening in the sovereign debt market.

Central Bank Directors and National Leaders all agree that a plan is necessary and not a bandage. The news keeps saying the plan has to be a bazooka otherwise the markets will crash.

The EU has been dragging this on for way to long and Investors are at their wits end. The next announcement needs to be a complete and all inclusive plan, without speculation and guestimates. The markets are looking for a complete roadmap, ready to roll out immediately.

The Central bank scheme announced yesterday is a stopgap measure designed to help for only a short term it is not a fix or a roadmap. The EU leaders have promised to have a complete plan ready for their December 9th meeting.

The question the markets are asking, is where the funds would come from to meet a need of 2 trillion dollars, even with support and assistance from the US, China and the UK, there is a shortfall and not enough money. Each country is facing their own economic and debt crisis and cannot offer all the assistance that maybe needed.

In the meantime the markets wait.

 

 

Markets Over React to the Central Bank Annoucement.

Strategists said Europe’s sovereign debt problems will continue to be the key driver for the euro. The EU and IMF must now do something positive to help the debt crisis and protect the euro.

Markets Over React to the Central Bank Annoucement.

The news today can be best interpreted from what investors and analysts are saying this morning.

“As Europe dithered, monetary policy makers acted, even if their ‘actions’ have more symbolism than significance,” said strategists at RBC Capital Markets. “Markets breathed a huge sigh of relief.”

Yesterdays move by the Central Banks signaled leadership and direction. This is what the markets are looking for. Investors jumped head first into the markets.

The move is an attempt to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.

“It’s the first time we’ve seen this type of global coordination since November 2008,” said Michael James, a senior equity trader at Wedbush Morgan. “The degree of coordination sends a message to the markets that global leaders are going to do whatever they need to do to instill confidence in the markets.”

“The fundamentals just keep marching forward despite the market turmoil,” said Doug Cote, chief investment strategist at ING. “The real economy seems indifferent to the EU debt headlines.”

Central banks are “hoping the rate is so attractive that hitting the swap line makes business sense as opposed to signalling vulnerability,” he said. “They hope if they draw enough institutions, the stigma will decline, stresses on the liquidity front will ease and that will ease some of the bearish demeanor towards the euro.”

“The price action was because the market was short, not being bought by people entering new long positions in euros and equities,” he said. “It’s people closing shorts.”

This morning’s coordinated action also implies that the central banks feel conditions are much worse than they would otherwise lead us to believe, which is why more liquidity is needed immediately,” said Kathy Lien, director of currency research at GFT. “The markets are always relieved to see central banks put up a unified front, especially on the heels of a similar increase in liquidity from China.”

Removing the risk of liquidity problems increasing further as year-end approaches provides a major relief to financial markets,” said Greg Anderson, senior currency strategist at CitiFX in New York.
“The level of cooperation and responsiveness being shown by the G7 central banks suggests that policy makers are now highly engaged and likely to come forward with further measures in coming days.”

“The big deal is just saying they are going to be involved. It’s not like they brought out the tank, they brought out the six shooter,” he said.

“It’s not enough. It’s a temporary liquidity initiative which is good, but it won’t solve the problem, because in a couple of days, the problems will put on their hats again,” De Leus said.

 

BREAKING NEWS… US to the RESCUE

Breaking NEWS.. The US to the Rescue

 

Investors, Traders, Economists and even Government Finance Ministers were shocked today, when Federal Reserve announced a global co-ordinated effort to help ease liquidity and borrowing around the globe. The co-oridnated effort includes the US, EU banks, England, Switzerland and Canada.

The plan to lower prices on dollar liquidity swaps beginning on December 5, and extending these swap arrangements to February 1, 2013.

The effort is meant to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Federal Reserve said in a press release.

The People’s Bank of China also announced a plan to increase liquidity by lowering its reserve requirement ratio for financial institutions by half a percentage point.

It seems that the EU, IMF, and global bankers and ministers have been quietly hard at work arranging a worldwide push to jump start the economy and at the same time to ease the pressure off of governments and banks.

It is the first time that there has been a true global attack plan.

Investors like what they heard and the markets have reacted positively to the announcements this afternoon. Europes markets soared this afternoon Germany’s DAX was upmore than 4%, while England’s FTSE 100 climbed and France’s CAC 40 was up nearly 3%.

There’s a feeling we’ll have a bit of action from the eurozone on the debt crisis, which has, for a change, put markets in a much more positive mood.

 

 

The Euro Returns to Reality

Early this week, investors, economists, reporters, columnists, analysts, were all swept away on the American Dream. Consumers were once again spending and the world was right once again.

Unfortunately, sooner or later the bubble has to burst. On Tuesday, George Osborne’s econimic speech was booed and hissed at. The papers and his fellow politicians swore at him. For once, the UK government was speaking the hard truth and the UK public just doesn’t want to hear it.
Sure everyone likes the American version, where you just spend, spend and spend some more, until everyone is happy, and our National Debt will be left as an inheritance to our grandchilder. The UK combination of David Cameron and George Osborne, have laid down a roadmap for the Commonwealth, to lead them back from the financial abyss.

The rest of the world should be watching these men, they have not taken the easy course, they have not taken the popular course, they have taken the course that is right for their country. It is not winning them votes and unfortunately, they will not receive praise for years to come, when history is written.

They have adopted the term “austerity” they have set their course and they are true.

Regardless of your personal belief, you have to respect the men for standing their stead. For keeping their path against all the odds.

Atleast the UK is not following in the paths of the European destruction. The UK has ringfenced their financial institutions, implemented austerity programs, reduced spending and unfortunately cut jobs. But it is a neccessity. If this was a private company, we would see their stock soaring.

Today’s news has now added India into the mix, one of the bright spots of the BRIC program, the development of the Indian Economy has been one of the more positive goals set by the IMF and the BRIC pact. India has truly bloosomed, but now that they have they are exposed to the global economic forces. Economic data released today, should India’s GDP fell and their growth rate dropped to 7% from an estimated 8.5 projection.

The euro begin to fall this morning ,the single currency was at $1.3280 against the dollar, from $1.3316

 

 

The Euro Returns to Reality

The European Markets were all tumbling as the dream of Black Friday and Cyber Monday, the not so complete news about the EFSF and the likelyhood of a final deal evoliving at the Decemeber 9th meeting of the EU. Monday, the markets were mislead by erroneous news about the IMF and Italy, which was complete falsehood. Tuesday the markets were hoping that there would be some plan emerging from the EU leaders meeting. There was bits of news, odds and ends, but nothing that could be called a real plan. Today, markets are reacting to the lack of leadership and direction.

Banks are falling, after the downgrades by Moodys and S&P yesterday. Bond yeilds are rising.

What is an investor to do… sit on the sideline or run to Gold, USD and other safe havens.

Financial Headlines from Around the Globe

Wednesday morning news can best be summed up in the headlines of the International Financial Newspapers

 

THE LIGHT AT THE END OF THE TUNNEL HAS JUST GOT DIMMER FOR US ALL.. The Hearld in response to George Osborne’s speech. BRITAIN’S squeezed middle is just about to get squeezed some more.

 

EUROZONE FINANCE MINISTERS LIKELY TO MISS RESCUE TARGET..Plans to expand the eurozone’s debt rescue fund to about 1tn euros ($1.3tn; £860bn) look unlikely to be achieved. BBC News.

 

The International Business Times opened with S&P DOWNGRADES 37 LARGE BANKS and continued with EUROPEAN SHARE RALLY ENDS

 

MARKET TO ECB: DOSOMETHING! From CNN Money with a second story entitled A FRENCH DOWNGRADE COULD DERAIL EUROZONE RESCUE

 

MOST ASIAN STOCKS DECLINE AS S&P CUTS U.S. BANKS’ CREDIT RATINGS the cover of BusinessWeek

 

BRITAIN BRACED FOR AGE OF AUSTERITY from API

Not a word about Black Friday, Cyber Monday. The magicians act worked for a day or two, but now the smoke and mirrors are gone and reality is about to set in.

Last night S&P and Moodys, got out their red pen and began slashing ratings. Bank of American dropped to a new low nearing the critical point of 5.00 per share.


Asian markets are the first to react to the late news from yesterday. Most Asian stocks fell after Standard & Poor’s reduced credit ratings for lenders including BofA., Goldman Sachs Group Inc. and Citigroup Inc. as Europe’s debt crisis cuts the global earnings outlook.

Bank of America, Goldman Sachs and Citi had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders. China Construction Bank Corp.and Bank of China Ltd., the nation’s No. 2 and No. 3 lenders, were upgraded to A from A-, joining Industrial & Commercial Bank of China Ltd., the world’s biggest bank by market value on higher ratings than their U.S. rivals. Sumitomo Mitsui Financial Group Inc. Japan’s second- biggest bank by market value, fell 1.4 percent. The MSCI Asia Pacific Index fell 0.3 percent to 112.81.

The markets are also reflecting dissapointment Europe, effort to expand its bailout fund which seems to be falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.

An agreement hammered out last month to expand the European Financial Stability Facility’s firepower to 1 trillion euros with leveraging will be “very difficult to reach,” was quoted by a Finance Minister .

The European situation is still at the center of market concerns, Investors will likely sell shares to lock into profit after recent gains.

Currency Flow – Investors are moving their money back to the US

European markets are strong this morning supported by news that the EU leaders have reached agreement on leveraging the EFSF European Emergency Funds. European Council president Herman Van Rompuy said that he will present a “roadmap” for the plan to EU heads of state at the council’s next meeting on Dec. 9.

Investors are starting to see direction and leadership. Although, this morning, ratings firm Standard & Poor’s stated they could downgrade the outlook on France’s AAA sovereign debt rating to negative within 10 days. Meanwhile, Moody’s said it may cut subordinated debt ratings on some European banks, because it’s concerned by the increasingly limited financial flexibility of many European sovereigns.

The agencies also warned that the US could face further downgrades if they do not reach an agreement to handle the US debt crisis before the end of the year.

Stocks and Bonds are diverging today, which is starting reflect changes in the markets. Although investors are relaxing now that it seems that the EU will pull out of the current debt problems. Many large institutional investors and brokers are quietly moving their portfolios out of Europe and back to the US, and specifically, into companies who are not exposed to European debt or a slowdown in the EU economy.

In the present, the dollar has been increasing in relation to the world’s currencies as it is considered that the U.S. economy continues to show slow growth in light of the most recent OECD report. Europe’s debts and the possibility of defaults have investors worried, the recent report from the OECD and the Bank of England indicate the onset of a deeper and prolonged recession and a contraction of growth. The dollar has shown strength as a result, as economic data improves, so does the dollar.

Meanwhile, the Italian Treasury borrowing costs surge as it sold a total of 7.5 billion euros ($10 billion) of a new three-year benchmark and other government bonds Tuesday. Italian bond yields had risen sharply in the secondary market ahead of the auction.

Today IMF President Christine Lagarde, made a direct announcement to help clarify yesterdays news that the IMF was to approve a loan for the Italian Government. Today she stated that, neither, Spain or Italy have asked for any assistance from the IMF

American Markets Soar Like the Eagle

America is a country of hopes and dreams. A novice trader could have predicted Monday’s market response to the headlines of every newspaper “ Black Friday sets record sales up 16%”.

When the markets are in dispair, they are looking for any news to buy or sell. Monday’s market was a god sent for day traders, they love markets that surge. Institutional and Investment Brokers were in the markets as they opened or before they opened and by mid day were reversing their positions taking huge profits. This is the game, the strategy.

American Markets Soar Like the Eagle

The early morning surge was pushed upwards on the false news from the IMF about a deal being negotiated with Italy, which proved total untrue. Before the markets could react, Reuters reported that officials have agreed on draft operational rules for the European Financial Stability Facility, the euro area’s bailout fund. This was just the newsthe markets needed. They were waiting for some direction, some leadership from the EU. The news was just that news, as the actual meeting with take place today.

With European markets moving rebounding, the US markets opened with a roar. The negative news from the OECD report did not even make a blimp on the monitor.

Continued news of poured into the markets on retail sales from Black Friday and the demand on Cyber Monday.  As the day drew to a close the markets rallied to close The Dow Jones Industrial Average rallied 291.23 points, or 2.6%, to 11,523.01. After a seven-session losing streak, the S&P 500 Index rose 33.88 points, or 2.9%, to 1,192.55.

The Nasdaq Composite Index climbed 85.83 points, or 3.5%, to 2,527.34.

Volume topped 3.8 billion.

U.S. online sales rose 14.9% percent on Cyber Monday, topping out at approximately $1.03 billion for the first time. Reports indicate CyberMonday far exceeded retailers hopes. This was the news that fueled the end of the day rally on Monday.  Asian shares are trading higher Tuesday morning fueled by the US markets and the news from the EU.

 

On A Positive Note

The euro remained steady its early morning rise on false information.

All eyes and ears will be on tomorrow’s meeting of the EU where they will be discussing leveraging the European Financial Stability Facility. By using leverage the EFSF can increase their lending ability many times over. Leveraging is a tool used by Forex and Option traders, who use small amounts of the portfolio to purchase large amounts of currency, commodities and options. It is a good tool when used wisely, it also allows for much larger losses.

The hopes of global investors are at least a firm plan and a course of action by the EU and a meeting of the minds so to speak between French President Sarkozy and Chancellor Merkel. These two have been at odds over risk and growth. The pair has taken on the role of leadership in the past many months, but have recently been at odds, which has upset economists and investors. With the turmoil throughout the EU, leadership and command are required. Plans of Action are needed, guidance and stability are required.

The markets today were up on the good news from the US and the chance that tomorrow’s meeting will finally have some firm directions for the Eurozone.

Economic news from the US continues to reflect an improvement in the economy. Early results on Cyber Monday, the day dedicated to internet holiday shopping, the counterpart to Black Friday show great promise for incredible results.

The disturbing report release by the OECD the Organization for Economic Cooperation and Development might really upset the markets tomorrow.

The growth figures for the US were positive and give some hope that it might be the US that is the locomotive with the power to pull the global economy back from the edge. Just a few months ago, we were hoping that Germany might be the driving force, but that is not the case. The new report released paints a bleak picture for Europe and the United Kingdom. The report predicted rising unemployment in the UK, with the jobless rate increasing from 8.1% in 2011 to 9.1% by 2013 even as the economy recovers. For the UK, the OECD’s predictions are a 0.03% contraction in growth this quarter and a further 0.15% next. And the eurozone would shrink in the fourth quarter by 1% and by 0.4% in the first quarter of 2012.

The overall report was bleak with the US and Japan showing some positive results.

Overnight, investors and economists, traders and politicians will begin to digest and factor in this report which might have some negative effects on the markets.

The worrisome news today was the treasurys, rates continued to rise. Yields on the 10-year note added 14 basis points to 2.03%, touching a high of 2.08%. A single basis point equals 1/100th of a percentage point. Watch the markets closely for clues tomorrow.

The News Heard around the globe

The International Business Times, reported the following this morning.” Asian shares jumped and the euro firmed Monday on hopes that Europe will come up with some concrete steps this week toward activating a crucial euro zone bailout fund and reports that the International Monetary Fund is considering helping Italy.”

This morning the euro rose 0.6 percent to $1.3322 after Italian daily La Stampa said the International Monetary Fund is preparing a 600 billion euro ($794 billion) loan for Italy without saying where it got the information. The IMF money would give Italy’s Prime Minister Mario Monti 12 to 18 months to implement policy changes without having to refinance the country’s existing debt, the Italian daily reported. Monti could draw on the money if his planned austerity measures fail to stop declines in Italian debt, La Stampa said.

The story began to spread around the globe within mintues, social net-workers were tweeting and online news centers were spreading the artilces. Reuters reported on Monday morning that contact between the IMF and Rome have intensified recently, but that it was unclear what support Italy could be offered.

In a short time, IMF chief Christine Lagarde, publicly denied the story and reiterated that the IMF was not negotiating with Italy and reiterated her earlier statement that the IMF only had an emergency fund of 285billion euro, not nearly enough to help, Greece, Italy, Spain and Portugal.

Investors are hoping for any news, especially good news, their nerves are shattered and raw and the slightest indication that the EU has a way to avoid multiple defaults, any signs of guidance or policy would boost the markets.

European markets were already responding the Black Friday news from the US, but these numbers are not firmed, all weekend the reports ranged from 6% to 16.% sales increases. Internet retailers were singing joy and claiming as much as a 35% increase. It didn’t take much news for weary traders to jump back into the markets.

The Italian Government today sold inflation-linked bonds  at a  yield of  7.3 percent, the second time in a week that the Treasury auctioned debt above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts.  The false rumors regarding the IMF assured a successful sale. Demand was 2.16 times the amount sold.

Watch the markets closely to see investors reactions to the retraction of the news. The euro, should trade lower later today, as the dollar surges based on retail sales in the US.

are hoping for any news, especially good news, their nerves are shattered and raw and the slightest indication that the EU has a way to avoid multiple defaults, any signs of guidance or policy would boost the markets.

European markets were already responding the Black Friday news from the US, but these numbers are not firmed, all weekend the reports ranged from 6% to 16.% sales increases. Internet retailers were singing joy and claiming as much as a 35% increase. It didn’t take much news for weary traders to jump back into the markets.

The Italian Government today sold inflation-linked bonds  at a  yieldof  7.3 percent, the second time in a week that the Treasury auctioned debt above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts.  The false rumors regarding the IMF assured a successful sale. Demand was 2.16 times the amount sold.

Watch the markets closely to see investors reactions to the retraction of the news. The euro, should trade lower later today, as the dollar surges based on retail sales in the US.

It is all an illusion; don’t look away for a second

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?