Darkness Before the Dawn? - Germany Starting to Feel the Heat

George Brooks |

Germany Chancellor Angela MerkelBrooksie's Daily Stock Market blog - an edge before the open

Wednesday, November 23, 2011       9:13 am EST

DJIA: 11,493.72      S&P 500: 1188.04

With the DJIA at 11,542 and S&P 500 at 1192 yesterday my blog alerted traders to a potential buying opportunity today. I  expected any  rally to be followed by a decline which would carry over into early trading today with the DJIA dropping to 11,300 (S&P 500: 1165). It would have to be a big “flush,” accompanied by good news (or hint thereof) to generate a playable rally, and then only for  sound sleepers with a tolerance for high risk. At this writing, the U.S. stock-index futures are not signaling a  big flush.

The market is starved for one iota of good news out of Europe.  We have been watching Europe melt down in slow motion with the potential for international financial contagion and huge problems for U.S. banks and our economy.  The prospect for  survival in Greece, Italy and Spain diminishes daily. The Euro-scene could hardly look gloomier.

But news sensitive markets can work both ways especially when the news is tilted so much to the negative.  One spark of hope for a game plan to stop the bleeding, or downtick in interest rates that Spain, Greece, Italy, France and Germany must pay to raise money would  turn the market on a dime.

Obviously, the stock market is trying to find a level that discounts Europe’s escalating crisis and its potential to adversely  impact U.S. banks and our  economy.

In times when a dire crisis can cause an international meltdown, national leaders tend to unite to head it off.

I think the reason our stock market has not plunged further is that  the Street expects European leaders to produce solutions to its sovereign debt woes, soaring interest rates and deteriorating interbank lending.

But it’s beginning to look like “each European nation for itself” and to Hell with everyone else.

However, suddenly Europe’s strongest nation, Germany, failed to receive bids for one-third of the 10-year bonds offered for sale today.  That translates into higher borrowing costs and a strong message – if investors are reluctant to buy German bonds, what is the fate of the weaker nations?

With Germany’s big toe in the stew with all the others, maybe we will get some action.

Today’s Jobless Claims (up 2,000), Durable Goods (down 0.7 percent) won’t have an impact. It’s all about Europe again.

Looks like the Pilgrims had it right just a little early. Hope you have a lot to be thankful for when you reflect on it tomorrow.

Super Committee:

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.  They blew it !

Dec. 23: Deadline for both houses to vote on committee bill – There’s none to vote on.

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. 21, 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”

Oct. 26, DJIA 11,706,    “Ball’s in Europe’s Court”

Oct. 31  DJIA 12,208,    “Buyers on Dips. Euro-Deal to Hit Some Snags

“Doomsters and Shorts Out in Force”

Nov. 2  DJIA: 11,637,     “Risk-Taker’s Buy Shaping Up”

Nov.3   DJIA: 11,836,    “Again – It’s  All About Europe”

Nov.4   DJIA: 12,044,    “Easy Does It !  Traders to Take Some Profits”

Nov. 7  DJIA: 11,983,    “SuperCommittee Will Soon Take Center Stage”

Nov. 8  DJIA: 12,068,    “Stock Market Hanging Tough – Would Love to Run…. but…”

Nov. 9  DJIA:  12,170    “Italy’s Turn to Crunch Prices, But the SuperCommittee is in the On-Deck  Circle”

Nov. 10,  DJIA:  11,780, “ OK Greece and Italy– Decision Time !”

Nov. 11,  DJIA:  11,893, “Potential for an Upside Breakout Looms, Absent New Negatives”

Nov. 14,  DJIA:  12,053, “SuperCommittee and Economy Taking Center Stage”

Nov. 15,  DJIA:  12,078, “European Outlook Tentative – U.S. Outlook Picking Up”

Nov. 16, DJIA:   12,096, “Europe – Surprise Us for a Change – Get the Job Done !”

Nov. 17, DJIA:  11,905,  “Time for European Leaders to Avert Contagion – European Central Bank to the Rescue ?”

Nov. 18, DJIA:  11,770,  “Stock Market a Coiling Spring ?”

Nov. 21, DJIA:  11,796,  “Occupy Washington”

George  Brooks

*National Journal

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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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