Sunday, November 20, 2011

Keystone's Weekly Summary and the Path Ahead 11-20-11

On 11/12/11, Saturday evening, Berlusconi resigns. Much of Italy celebrates his departure. Mario Monti takes over.
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On 11/14/11, Monday, Europe was higher reacting positively to Berlusconi’s departure. Music fills the plaza’s but many worry that Mario Monti will not be able to fix the mess in time. President Obama attended the Asia-Pacific economic Cooperation (APEC) summit and comments that “Enough is enough,” and “China needs to act like a grown-up economy. Do not take advantage of U.S. businesses.” This rhetoric will only increase tensions and promotes future trade wars. The Spanish 10-year moves above 6% indicating that European contagion is worsening.  The day ends with markets slightly lower.

On 11/15/11, Tuesday in the early morning hours between 1 and 4 AM EST, New York City police evict the Occupy Wall Street protestors from Zuccotti Park, taking advantage of the early hours when protestors are sleepy to avoid violence. Police cite health, fire and safety reasons for the eviction but the protestors were planning a major move on Wall Street in two days to celebrate the two-month anniversary of the movement, so the police took pre-emptive action.  Police say that protestors are allowed to return but sleeping bags or tents are not permitted.  About 70 arrests, perhaps as many as 150, occurred. Italy 10-year yields move above 7% again and Spain 10-year yields are well above 6% at 6.33%, fueling contagion fears.  Futures steadily deteriorate as Italy struggles to form a new government.

On 11/15/11, markets trend lower into lunch time.  Mario Monti announces that he is making strong progress with forming Italy’s new government.  The markets perform a rocket launch to the upside on the news erasing the day’s losses and moving well into the green.

On 11/15/11, Keybot the Quant algorithm flips back to the short side at 11:27 AM at SPX 1247. The trade from 11/11/11 is flat. Markets remain very unstable.

On 11/16/11, Wednesday, markets are weak as Euro worries persist and Italy’s Unicredit seeks funding from the ECB. BOE warns of slower growth ahead.  Oil tops 100, then 101, then 102. Gold sells off now moving in sync with equities. Stocks recover as the day moves along but during the last half hour of trading, Fitch rating agency announces that the U.S. banks face ‘serious risk’ unless the European debt crisis resolves in a ‘timely and orderly manner’. The three banks most exposed to the Eurozone troubles are JPM, BAC and C. Further losses in confidence in these banks will provide a catalyst for the globe to spin out of control.  Stocks tumble with the SPX closing down 21 points, or 1.7%.  The Dow Industrials lost 191 points, or 1.6%. The Nasdaq led the downside, which is not a good sign, down 47 points, or 1.7%.

On 11/17/11, Thursday, the day begins with a strong focus on Europe 10-year yields. Spain hits a record high not seen since June 1997.  France and German 10-year spread exceeds 2% indicating contagion worries are increasing.  France 10-year yield is 3.75%, Spain 6.60% and Italy staying above 7% at 7.05%. The formation of new governments in Greece and Italy continue while elections in Spain are on tap. France and Spain hold a substantial amount of Italy’s debt which fuels the contagion.

On 11/17/11, the U.S. markets are weak and at noon the semiconductor sector collapses, dropping the major indexes. Keystone’s SPX:VIX Ratio Indicator drops under 35 indicating a large down day on tap. The markets tumble but moderate into the close with the SPX down 21 points, or 1.7%, now printing two back-to-back days of losses over 1.5%.  The Dow Industrials fell 135 points, or 1.1%.  The Nasdaq, that led the slide lower with weak semi’s and tech today, finished down 52 points, or 2%.

On 11/18/11, Friday, ECB’s new head, Draghi, says ‘we must work together with emerging economies’, no doubt hoping for rich Uncle China to send some dough. The ECB is buying Italy’s and Spain’s bonds today keeping the Italy 10-year yield under 7% and helping the euro get a lift.  Worries surface that the ECB may have a cap on their bond buying and that their actions may end up causing more harm than good.  Germany’s major worry continues to be inflation since the 1921-1924 Weimar Republic hangs overhead.  Many now jokingly refer to the European debt crisis as “..having a German Pope and an Italian Central Banker.”

On 11/18/11, China property prices in 70 cities dropped for the first time this year—the bubble is popping.  The U.S. housing bubble popped July 2005 and remains in a funk six years later.  Bini Smaghi warns that Italy faces a ‘traumatic wake-up call’.  The markets languish sideways all day and close flat.  For the week, the SPX lost almost 50 points, about 3.8%.  The Dow Industrials lost 358 points or 2.9%. The Nasdaq lost 106 points this week, 4.0%; the breakdown in semiconductors and tech stocks notable.

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On 11/20/11, Sunday, the politicians speak somber tones concerning the U.S. budget talks. The super committee must come to an agreement by midnight Monday night so the Budget office can score the proposal ahead of the Wednesday deadline. Antonis Samaras, one of the leaders of the Greece coalition, refuses to sign oath concerning austerity measures.  Spain conducts an election today as their debt fears grow out of control. Egypt erupts with violence. A holiday shortened week of trading is ahead with lower volume trading expected.

On 11/21/11, Monday, …………………….

………………………the saga continues…………..

Looking ahead to next week,

Eurozone problems continue. Italy and Spain remain the big worries. Watch Italy, Spain, France, Germany and U.S. 10-year yields to gauge the growing contagion.  Global recovery is stalling. China bubble popping. Copper and commodities languish.  Financials and semiconductors broke down last week.  Retail and utilities are the only two sectors supporting the bull case so stay alert for any signs of weakness.

On 11/21/11, Existing Home Sales and 2-Year Note Auction.

On 11/22/11, GDP and FOMC Minutes.

On 11/23/11, U.S. Deficit Commission deadline, Durable goods Orders, Fed-fave Personal Income and Outlays, Jobless Claims and Consumer Sentiment.

On 11/24/11, Thanksgiving, markets are closed.

On 11/25/11, a shortened session with markets closing at 1 PM.

On 12/8/11, ECB rate decision and conference.

On 12/13/11, FOMC rate decision meeting.

On 12/23/11, Congress will conduct the debt vote. Merry Christmas.

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