No such message found
Welcome To the Stock Synergy, Momentum & Breakout HUB On AGORACOM
Edit this title from the Fast Facts Section
Message: An Economic Iceberg Dead Ahead?
Iceberg Dead Ahead?
While U.S. earnings reports and markets were largely positive last week, a stunning drama continued to unfold regarding Greece, the IMF and the European Community. Is this an iceberg for the U.S. and world economy or a tempest in a teapot? We’ll take a closer look in a second.
Looking at My Screens
It’s a hard time to be in inverse positions and cash as there seems to be no stopping the upward climb of this market, but still we remain in the “Red Flag” mode, expecting lower prices ahead.
Markets remain vastly overbought, the ratio of call to put options is approximately 2:1 which is near historic highs and at levels that generally precede corrections, corporate insider selling remains high, and bullish sentiment among investment advisors is close to the October, 2007, all time high, all of which are bearish indicators.
Additionally, we are approaching the 200 week moving average on the major indexes which typically marks extreme resistance and we are entering the “six worst months of the year” with the “sell in May and go away” theory kicking in next week.
Finally, emerging markets have been substantially weaker recently than U.S. markets, and these typically are leading directional indicators and could foreshadow more difficulties ahead for our markets, as well.
The View from 35,000 Feet
At home this past week’s news was mostly good with earnings largely exceeding expectations, durable goods orders advancing and new home sales increasing more than expected. This is remarkable since there is currently an almost nine year backlog of inventory of foreclosed homes currently owned by banks.
The Producer Price Index was up while initial unemployment claims were down.
But the big news that went largely unnoticed in the U.S. was the drama unfolding around Greece and their rapidly deteriorating financial situation.
This past week the Greek government went to the IMF and EU with a formal request for aid after their financial situation continued to crumble.
Some of the details of this decline are truly shocking as the yield on their ten year notes climbed to more than 10%, their deficit projections were revised upwards from 12.7% to 13.6% and Moody’s downgraded the country’s credit for the second time in five months.The Greek stock market has declined 30% in six months as investors flee the country and interest rates are shooting up there and in the other “PIIGS” countries, as well, as fear of contagion continues to grow.
“D-Day” is May 19th when 8.5 billion euros in debt comes due, but the outlying numbers are even worse with an estimated 55 Billion euros needing to be refinanced over the next year, only 10 billion more than the current bailout being discussed.
As the EU and IMF debate the conditions for the bailout, Greece’s unions continue putting on strikes and demonstrations and unrest continues to grow among the parliaments and citizens of Germany and Switzerland in particular.
The German Finance Minister compared Greece to a “second Lehman Brothers" while the Greek Prime Minister called his country a “sinking ship.”
However, while the ship sinks, Germany continues dragging its feet regarding actually disbursing the funds. Also, parliamentary approval is needed from 15 of the eurozone countries before actually forking over the cash and if approval is gained, we will likely see court challenges claiming that the bailout runs contrary to the european Union charter.
What It All Means
So why should we care about Greece? The answer lies in the fact that most of Greece’s debt is owned by banks outside of Greece, approximately 70%, and 13 EU countries besides Greece already exceed the debt limits set by the Commonwealth’s charter, including France and Germany.
A Greek default on their bonds could set off a banking crisis across Europe that could quickly spread around the world. Just remember Dubai a few months ago and the tremors generated by that statistically much smaller threat of default.Bottom line is that the EU “bailout” isn’t a bailout at all, at least not yet, and is subject to parliamentary approval from countries whose citizens are generally opposed to offering any help at all while the Greeks themselves protest against the “barbaric” terms being forced down their throats to save their economy.
So the drama continues and the next couple of weeks will be interesting to watch, to say the least.
The Week Ahead
This week we’ll have a few remaining important earnings reports, some important economic reports and the FOMC interest rate statement on Wednesday as potential market movers.
Everyone expects interest rates to remain unchanged but the Fed statement regarding future moves or a change to interest rates remaining low for “an extended period” will be closely watched. Friday will bring a first look at First Quarter GDP which is expected to show slower growth compared to 4th Quarter and more consumer sentiment readings will be revealed.
Loading...
Loading...
New Message
Please
login
to post a reply