Thursday, December 15, 2011 9:12 am ET
DJIA: 11,823.48 S&P 500: 1211.82
Indeed, it is a rumble, but not in the jungle, it’s in your back yard and 17 butts are going to get kicked if there is not a united effort to fortify CONFIDENCE. Without it, banks won’t lend to anyone, businesses will be reluctant to spend or hire, and a European economy that is drifting toward recession will accelerate on the downside. As a currency, the euro will fail, at a big cost. Europe’s bank and sovereign debt problems are adversely impacting global economies and investment markets. I think I speak for most U.S. investors, stop pitter-pattying around and jabbing from afar, and start throwing some heavy leather and get the job done. If this was a fight, it would have been stopped a long time ago.
Do you have the will and tools to prevent a meltdown of the euro and consequences that would result ? Yes, or No ?
If “YES,” let the world know how and when.
If “No,” take the hit.
The uncertainty is deadly.
“It’s very Frustrating,” John Carey, manager of $220 billion for Pioneer Investments, told Bloomberg News. “There’s just a hypersensitivity to stories coming out of Europe. Any indication is seen as a basis to trade. Nobody sees a way through this at the moment.”
While the U.S. economy is recovering, (by eights and quarters), it is not invulnerable to a recession in Europe and/or Asia. It won’t be long until the Street will NOT be satisfied with a gradual recovery to justify investment commitments, it will demand a stronger one, one capable of surviving a recession or slowdown abroad.
Three economic reports hit the newswires this morning at 8:30: Jobless Claims, the Producer Price Index, and the Empire State Manufacturing Survey. Industrial Production (9:15 a.m.) may come too late for this blog. At 10:00 a.m. the Philly Fed (regional business conditions) Survey is reported.
Jobless Claims for the week ending Dec. 10 dropped 19,000 (very good), Producer Prices were unchanged, and the Empire State (regional business) Survey improved sharply to 9.5.
CONCLUSION: My December 1, post headlined, “New Tradable Trading Range DJIA Emerging.” Following an 18% plunge in the S&P 500 between July 21 and August 9, the market became locked into an irrational trading range that lasted until Oct. 4 when it started a surge, that would establish a new range for stock prices with the lower end of trading set around DJIA 11,200 (S&P 500: 1140).
I believe we are still in that new trading range, but probing for a level that discounts present uncertainties, primarily source out of Europe. Today’s upbeat economic reports were greeted by a spurt in pre-open futures, indicating a sharp rebound from yesterday’s close. Without a change for the positive in Europe, resistance to the rebound starts at DJIA 11,960 (S&P 500: 1226). Today’s better-than-expected economic reports help offset the European uncertainties, but the latter is still the obstacle to a sustained upmove in stocks. Europe, tell us you can avoid a collapse of the euro. Granted, you don’t want to resort to a goal line stand unless absolutely necessary, but tell us you can if you have to, and our stock market can boil.
The European Union (EU) is an economic and political union of 27 sovereign member states with origins going back to 1958, but which was officially established by the Maastricht Treaty in 1993. Its goals are a free movement of goods, services, capital and people differing in life style, language, economies, geography, religion, politics and history.
Its 27 Members include: Austria, Belgium Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The EU comprises a population exceeding 500 million people a GDP exceeding 16.2 billion USD, some 20% of the world’s GDP.
Important components of the EU include: European Parliament, European Commission, Council of European Union, European Council Court of Justice and European Union, and the European Central Bank.
The euro area (eurozone) is an economic and monetary union (EMU) of 17 member nations that use the “euro” as their common currency and sole legal tender. Its members include: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
While the goal of single currency originated with the European Economic Community (EEC) in 1969, it was not until 1993 that members were legally bound to start the monetary union no later than January 1, 1999. At that point, the euro was launched after which it was an “accounting” currency until January 1, 2002 when euro notes and coins were issued and national currencies phased out in the eurozone.
The European Central Bank (ECB) is the central bank for the eurozone. Governed by its president, Mario Draghi, and a board of the heads of national central banks, the ECB’s primary responsibility is to maintain the euro’s purchasing power and price stability within the eurozone.
The Eurosystem is the monetary authority of the eurozone comprised of the ECB and the central banks of its member states, which are charged with applying the ECB’s policy.
The European Commission, comprised of one commissioner from each of the 27 member states, represents the interests of the EU, drafts proposals for laws, and manages the day-to-day business and disbursement of funds.
European Banking Authority (EBA): Established on Jan. 1, 2011 as a regularity agency to conduct stress tests of banks in order to detect weaknesses in capital structure. It has the power to overrule national regulators if necessary to prevent unfair competitive advantages between jurisdictions. It issues a report, Common Reporting Framework (COREP) covering capital requirements regarding credit risk, market risk, operational risk, fund and capital adequacy ratios.
The European Financial Stability Facility (EFSF): created by eurozone members to safeguard financial stability in Europe. Authority includes loans to countries in need, intervention in primary and secondary markets pursuant to ECB analysis, finance recapitalizations of financial institutions. It is backed by guarantee from the eurozone members for a total of 780 billion euros and has a lending capacity of 440 billion euros. (not considered adequate)
One euro = 1.3449 U.S. dollar (12/5)
Prominent names: European Union President: Herman van Rompuy, European Central Bank President: Mario Draghi, European Commission President: Jose Manuel Barroso, German Chancellor: Angela Merkel, French President: Nicolas Sarkozy, Italy Prime Minister: Mario Monti, EFSF President: Klaus Regling
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.
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:
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
Nov. 21, DJIA: 11,796, “Occupy Washington”
Nov. 22, DJIA: 11,547, “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”
Nov. 23, DJIA: 11,493, “Darkness Before the Dawn ? Germany Starting to Feel the Heat”
Nov.25, DJIA : 11,257, “Europe, Where Art Thou ?”
Nov. 28, DJIA: 11,231, “Finally ! The European Leaders Act”
Nov. 29, DJIA: 11,563, “Game’s On !”
Nov. 30, DJIA: 11,600, “Full Court Press to Address Europe’s Problems”
Dec. 1, DJIA: 12,020, “New “Tradable” Trading Range DJIA Emerging”
Dec. 2, DJIA: 12,020, “U.S. & Euro Shaping Up – Game Changers ?”
Dec. 5, DJIA: 12,019, “Big European Week Spells Volatility”
Dec. 6, DJIA: 12,097, “Mounting Uncertainties Call for a Pullback of 200 – 300 Dow Points”
Dec. 7, DJIA: 12,150, “Easy Does It ! No Room For Disappointment at Euro Summit
Dec. 8, DJIA: 12,196, “Getting Close to Tectonic Shift- Pessimism to Optimism.”
Dec. 9, DJIA: 12,184, “Good Summit – Uncertainties Linger”
Dec.12, DJIA: 12,184, “Summit’s Success Questioned – Market Seeks Comfort Level”
Dec.13 DJIA: 12,021, “Money Managers Pondering Risk/Reward”
Dec.15, DJIA: 11,954 “More Consolidation Needed”
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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