Brooksie’s Daily Stock Market blog -an edge before the open
Monday December 12, 2011 9:21 am EST
DJIA: 12,184.26 S&P 500: 1255.19
Today: Bad start for the week, as last week’s summit is drawing poor reviews, thus extending the UNCERTAINTIES that have bedeviled investors off-and-on for months. The stock market is just going to have to find a comfort level that discounts ongoing uncertainties accompanying the fate of the euro. The weekend produced a lot of negative sentiment about the summit, and that will be hard to reverse. The market’s action this week may give the Street a better read. Failure to sell off in face of so much negativity would be bullish. Look for a drop to the DJIA 12,035 (S&P 500: 1240) today and tomorrow before any meaningful buying is possible. A one- or two-day reversal to the upside would obviously be bullish in face of uncertainties hammering stock prices at the open today.
Last week’s eurozone-summit needed to establish a framework from which its 17 members can start chipping away at debt, reinforcing bank liquidity and setting enforceable rules for debt excesses.
Last week’s eurozone-summit needed to remove the chances of a meltdown abroad, if stability in the stock market is to be achieved.
Have the Europeans succeeded ?
It’s a start, but the doomsters have rebutted with “not enough,” and “wrong solution,” and Moody’s announced it will be reviewing the credit ratings of all eurozone countries in Q1 as it assesses whether the summit is producing desired results..
There are institutions, investment pools, and individuals who are “short” who want a meltdown, or at least a huge sell off so they can make money on the downside, then buy-in to make it on the upside. They are out in force, but they will always be there. The question is, are they right this time ?
Faster money can be made on the downside if your timing is right and the news flow/spin is on your side than on the upside. It is easier to chase investors out than to corral them in.
Once again, investors are confronted by the unknown. Who do you believe, and are their beliefs well founded, or just an attempt to manipulate the markets for their own gain? Based on my experience, it is some of each.
Dan Morris, JPMorgan Chase & Co, London doesn’t think anything has changed, that it will take a “combination of ECB support for banks and sovereigns, plus individual country progress on reform and austerity packages,” to settle the markets.*
Adding to today’s weak opening is a comment over the weekend cooling speculation that the European Central Bank (ECB) will extend its role and initiate aggressive bond buying like many were hoping it would.
Maybe it will, if the crisis worsens, explains George Magnus, senior economic adviser at UBS AG in a Bloomberg television interview.*
If it’s any comfort, Germany’s Chancellor Angela Merkel is more upbeat, saying, the summit set the region on a path to a lastingly stable euro, and a breakthrough to a stable union has been achieved. She will address Germany’s lower-house on Wednesday regarding the summit.*
We are going to have to listen to the stock market on this one. Its assessment is what counts, not individual commentary.
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”
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.