Ball's in Europe's Court

George Brooks  |

Brooksie's Daily Stock Market blog - an edge before the open

Wednesday, October 26, 2011       9:16 am EDT

DJIA: 11,706.62      S&P 500: 1229.05

The U.S. Stock-index futures are striking a more positive tone today vs. yesterday’s 200 point plunge in the DJIA, suggesting progress in Europe on searching for answers to the region’s bank and sovereign debt problems.

The good news is we have reached the day when answers are expected to be announced. The bad news is a lot is riding on what is agreed on.

The stock market has soared 14% in anticipation of good news.  There is no room for disappointment or the stock market will sink back into the trading range that has held it hostage since early May.

   News out of the European summit today must be reassuring enough  to eliminate continued uncertainty and its curse – a negative impact on consumer sentiment right before the crucial holiday spending season, indecision on the corporate level, uncertainty and volatility in global security markets.

The three primary  issues  under consideration at the euro-summit are:

- the amount that Greek bonds will be marked down and what will be done with the remainder.

-Bank recapitalization.

-the expansion of the 440 billion-euro ($612 billion) European rescue fund.

It appears that Greek bonds will be discounted at 50%. Germany’s Bundestag will vote on the rescue plan today prior to Chancellor Merkel’s flight to the Brussels summit.

Economic news here  is mixed, but in keeping with an economic recovery that has stalled but not reversed.

   Consumer Confidence slumped to its lowest level since March 2009.  Reflecting consumer perceptions on business and employment prospects, this index has been sliding since March this year and understandably so.

Durable Goods  for September were down 0.8 percent in line with projections. More importantly, at 8:30 tomorrow we get Jobless Claims and the Q3 GDP report (subject to revision in coming weeks).  The GDP report is expected to surprise on the upside, countering some of the negative sentiment we have seen, and read about.

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   CONCLUSIONOn Monday, the market hit my projected resistance levels (DJIA: 11950 and S&P 500: 1255) before turning down Tuesday.  Those levels will have to be topped in order for the market to wage an assault on the July peaks from which the market declined and entered into the August – October Trading range. That can happen if Europe delivers the goods today.

The SuperCommittee:

The SuperCommittee has been lost in the shuffle, upstaged by  international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.

12-member SuperCommittee timeline:*

Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.

Oct.: 14: Deadline for House and Senate  Standing Committees to submit recommendations.

Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction  goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama and Congress.

Dec. 23: Deadline for both houses to vote on committee bill.

Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if

the committee’s legislation has not been enacted.

Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.

Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche

($1.2 – $1.5 trillion) of debt limit increase.

Fall/Winter 2012: When additional $2.1 - $2.4 trillion of borrowing authority from this law runs out.

Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary

to meet spending cuts required by the “trigger.”

Recent blog headlines:

Oct. 13, DJIA: 11,518,   “180-Degree Change in Expectations – No Room for Surprises”

Oct. 14, DJIA: 11,478,   “Europe Still the Key – Q3 Earnings Run a Close Second”

Oct. 17, DJIA: 11,644,   “Snags En Route to Euro-Solution to be Expected”

Oct. 18, DJIA: 11,392,  “Test of the October 4 Rally’s Strength”

Oct. 19, DJIA: 11,577,   “Best Six Months Looms, But Volatility to Continue”

Oct. 20, DJIA: 11,504,   “All Eyes on Euro-Summit this Weekend”

Oct. 24, DJIA  11,541,    “DJIA 12,000 “IF” the Europeans Can Get It Right”

Oct. 24, DJIA  11,808,    “Euro-Solution Announcement After Wednesday’s Meeting”

Oct. 25, DJIA:  11,913,  “Short-Term Euro-Solution Doesn’t Cut It”


George  Brooks

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*National Journal


The writer of Brooksie’s Daily Stock Market blog, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.






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