ITALIAN ROAST? (FORGET ABOUT THE USA)

Are we headed back into a declining Euro environment as a result of rising Italian bond yields?  To be clear this would mean that we might see a falling US equity market as well.

SETTING THE STAGE FOR MORE FED ACTION? --- NOT YET, BUT CLOSE
We have the FOMC meeting today and don't believe we'll see anything too earth shattering, except I do believe that we will begin to hear more and more from the Fed that they are concerned about lack-luster growth and that they may need to step in and assist the economy?  You might say, "Why would they need to interject themselves now?"  Unfortunately, the Fed has increased the scope of their mandate and now they are the keepers of growth and provider of liquidity for the entire world.  This is not going to be an ECB or Euro problem, it is a Fed problem and no matter how good the US economy or earnings stateside look, you can bet that Uncle Benny will be focused on halting the spread of credit issues here.

The Italian bond yield is just one indicator that all is not well.  Clearly we still have the Greek issue too.  But further, we are seeing many signs of a complete credit seizure type event in Europe that is building.  Large firms are having trouble performing in this environment because credit spigots are being turned off (for themselves or for their clients).  Could it be that we are witnessing the Lehman moment for many industries in the Eurozone?  The Fed will have to act won't it?  It will need to stave off any chance of that coming to our shores, right?

LOOK FOR A TIP OF THE HAND IN THE PRESS CONFERENCE
As a result, of the worsening credit conditions overseas you should look for key words in the written statement and the press conference related to "providing liquidity facilities", Repos, Dollar Swaps, and inter-bank lending facilities.

The credit and debt issues of sovereign nations is bleeding into the business of regular businesses as Siemens reported declining margins and profits.
SIEMENS REPORTS DECLINES

The trouble is affecting smaller businesses as well as we see in this recent article in bendbulletin.com.
The gist of the story is that larger banking institutions have just stopped lending to smaller firms and therefore new niche lenders have moved in to fill the void.
TIGHTENING CREDIT


Unfortunately, the new lenders aren't making things better for Swiss Eurozone refiner PetroPlus who filed for bankruptcy earlier this week.  The firm was getting crushed by a poor economic environment as oil prices rose and the crack spread went against them.  Lenders refused to step in and provide liquidity creating a situation which couldn't be managed.
PETROPLUS FILES


The situation in Europe is not getting better for companies, bond trading in sovereigns is not improving, and the Greece situation is coming close to a head where bond holders are about to take it on the chin and take real haircuts.  Can the Fed come to the rescue again?  We will see shortly.


Becareful trading today as FOMC events can be hazardous to your account's health if your are long or short.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/