Tuesday, November 16, 2010


I'm too entrenched in work to write a long passage here, so I thought it might be best simply to reference a post by Mish here that highlights the big trouble in little Europe.  As you know, Mish is one of my favorites and I read his stuff almost daily.  Please read - EU President Proclaims "Survival Crisis"; Everyone Wants a Bailout of Ireland Except Ireland; Austria tells Greece to Get Stuffed; Currency Ping-Pong

As I mentioned in the November update, the only thing that could have derailed QEII was the one thing that I'd been watching daily, European Euribor Funding Rates and Sovereign Debt CDS (Credit Default Swaps).  In beginning of the month post titled "November Update - Man Do I Feel Richer" I highlighted that all emerging markets anything and all commodities were much higher and I felt great.  I continued in the trading section to say that this would continue UNLESS...
 "If these continue to blow out this could derail the heroin induced rally the Fed has us on, just like what happened in April of this year."

And so just like in April, we tested the highs of the year only to sink back quite quickly in a sea of fear that Europe would implode and the mess that is the financial community might spread its contagion around the world again.

So, I continue to watch those Euribor spreads like a hawk and it seems as though those are stabilizing and I'm watching CDS spreads as well.  While I said that this pullback was healthy and expected we need to watch the stories about Greece and Ireland.  I'm not doubting that they will come to some bailout - like they do every other time.  They must, or else the games cannot continue for everyone and every central bank.  So, my real outlook is that  I do believe that it is going to continue two or three more days which could be ugly, but theirs always a sticksave in the weekend isn't there?  As soon as we hear more people telling us that this really is the end and then we'll find our white knight (Uncle Ben and his boys and perhaps Jean Claude Trichet too?) to save us all.

I have trimmed my short term trading accounts but am not short here and don't want to get sucked into the idea that we'll see a complete meltdown. 

I am seeing lots of weird stuff going on in the market and normal relationships are breaking down so it is always important to continue to be vigilant.  Oh yes, and right on cue when the dollar looked like it was about to be totally trashed and thrown away in a dumpster what should be find?  That's right, a European collapse!  Perfect timing allows the US to see some upward movement of the US dollar and gain some technical traction.  The European financial fires are music to a fiddling Uncle Ben.

Be careful!