Slope Of Hope with Tim Knight

Sino-Euro Support Analysis: Draft 0.1

Not This Time

There is hardly anything different about the experience we're going through right now than what we went thorugh late last June - - - the tear gas, the pledges that this austerity would solve everything, the declarations that everything was fixed - - it's all exactly the same.

But there's one thing that's going to be different. I'm not getting sucked into believing it. Last summer, I spent almost all my free time at Stanford Sierra Camp - - the time I should have been hiking, exploring, and enjoying myself - - - plopped in front of a laptop and sweating out the Greek vote drama. It was a complete and total waste of time. I was stupid to worry; I was stupid to think anything would get solved with another band-aid; and I was stupid to spend my time watcing politicians instead of enjoying life.

Greco-Roman Wrestling

It may sound odd for someone like me, but I'm glad the Greek vote passed. If it had failed, someone would have come up with some dumb-ass plan to "save" everything and undo the vote. As it is now, the bulls got precisely what they wanted. The Greek people have been sold up the river. So all the good news that can be had is already out there. Lap it up. Because there's not a doubt in my mind that Greece is ultimatley doomed, and the Euro is going to be drowning in due time.

Below is the "everything is saved and everything's going to be great again!" rally.....

The German Squeeze Play (by Vandalay)

One of the phenomena that behavioral economists and psychologists have identified as being part of our decision making process is happening now. The perils of complexity refers to the phenomena where the more complex a decision the more we fall back on simplistic solutions.

In the case of Greece, the number of variables, parties involved and lack of precedents has resulted in the market saying in effect " This is too hard to figure out so I'm just going to wait until it is easier to quantify, then I'll re-price the risk"

Meanwhile Germany is exhibiting the classic signs of an employer who really wants an employee to quit, but doesn't want to pay severance.  Over the last few weeks Germany has progressively increased the cost to Greece of staying in the EU by introducing tougher conditionality for any release of funds. Germany wants Greece to leave so that it can redeploy the funds where it is less likely to be a money sinkhole. But they want the process to be sufficiently drawn out that the market has time to adjust. In this regard they are mostly succeeding. We now have Dutch EU Commissioners openly talking about Greece leaving the EU and the market doesn't even blink.

However the market has not priced in the risk because it is too complex. If Greece leaves, as I now think they will, there will be a re-pricing of risk. It will not be a Lehman event, but it should be the catalyst for at least a modest (2-5 %) correction.

Just don't ask me when.....

European Consumer Confidence Has Not Improved

European Confidence data released today shows that consumer confidence remains depressed at 2008/09 levels, well below zero, as shown on the graph below. This low level of consumer spending is fact in spite of the rosy picture that markets are attempting to paint and is well below the average recorded for the past nine years.

 

 

 

http://strawberryblondesmarketsummary.blogspot.com/

I'm Full of Spunk!

I've always been amused by the slight differences between British and American English (trunk/boot, gas/petrol, etc.) Here's a handy guide for those of you who are better-traveled than me:

Portugal...The Eurozone "Poor Relative"

Below are several charts and graphs (available at www.Stockcharts.com) comparing the German DAX, French CAC, Portuguese PSI, and Greek GRDOW Indices over three different time periods.

The first two are taken over the past three months. We can see on these that although the DAX and CAC began to rally in November, Greece continued to drop until last week, and Portugal has basically moved sideways from November.

David Einhorn Captures Europe Beautifully

Dead Cat Bounce? (by Springheel Jack)

We've been having a lot of days where the low has been made about 10.30 and equities then rose for the rest of the day. Yesterday broke that with a bounce that petered out and then drifted downwards until the close. That doesn't mean that we've seen a top, but it is a change in the character of the market. On ES we have broken down from last week's rising channel into a shallower one. A break below channel support in the 1280 area would look immediately bearish. Channel resistance is in the 1308 area:

Bank of Canada Business Outlook Survey

The Bank of Canada released its latest Business Outlook Survey this morning. As referenced in the notes below (courtesy of www.Forexfactory.com), it's a leading indicator of economic health, affecting spending, hiring, and investment, and it can have predictive qualities regarding future economic conditions because the surveyed firms are selected in accordance with their composition of the nation's GDP.

The survey is shown in its entirety here: http://www.bankofcanada.ca/wp-content/uploads/2012/01/bos_winter2011.pdf