cancel2 2022
Canceled
I received this email today.
[FONT=Georgia, Times New Roman, Times, serif]Today's Forecast: Ominous Darkening[/FONT] [FONT=Arial, Helvetica, sans-serif]
by Shah Gilani
[/FONT] [FONT=Arial, Helvetica, sans-serif]Dear Reader,
The problem I have with providing "insight" into the market is that the deeper I look, the darker it gets.
Right now I can't see through to the other side. It's just that murky everywhere.
Not only did the S&P 500 fall 56.98 points (or 4.7%) last week, but it broke important support at 1160, ending Friday at 1158.67. The benchmark also broke its 50-day moving average back on Monday.
Cumulative breadth (advancing issues minus declining issues) has been tanking.
And speaking of slip-sliding away, third-quarter GDP growth here in the U.S. was revised down to 2% from the previously reported (make that estimated) 2.5%.
Downward pressure was evident across the globe, in terms of GDP growth expectations, sovereign creditworthiness, and stock markets.
In fact, I can't find any equity benchmark anywhere in the world that rose last week. That's because there wasn't one.
What there was a lot of last week - and what there will continue to be a lot more of - is mounting fear that the European Union is about to become unglued. The Eurozone is already being held together with nothing more than Band-Aids and hope, but increasingly those Band-Aids are falling off.
[h=3]Slight cuts sometimes end up being the deepest.[/h] When any ratings agency starts cutting a country's creditworthiness, it's never the case that, within some reasonable period, and without any further downgrading, the subject's ratings miraculously jump back up to vaunted status.
It just doesn't happen. It usually goes the other way.
So it was last week for Hungary, which got cut to junk by Moody's, and Portugal, which got cut to junk by Fitch. Those ratings cuts cut deep.
But I was more concerned, and you should be too, about Belgium being cut a notch by S&P. Belgium and France just stepped up with a more than $100 billion commitment to assume the liabilities of the recently declared insolvent Franco-Belgian lender Dexia.
No-one knows what the lender's real bailout needs will be; that's going to be a matter of its portfolio of loans and how they perform or don't. Now with Belgium being downgraded, the backstop falls more on France, which is itself facing a threatened downgrade by Fitch.
France's creditworthiness being cut from triple-A would send shivers down the collective spines of creditors to Dexia, not to mention the rest of Europe's banks.
The whole idea of leveraging up the European Financial Stability Facility to essentially bring its bazooka power to something like a trillion dollars, or two, is predicated on the creditworthiness of the backers (the European nations with creditworthiness), meaning their AAA ratings.
Increasingly, the idea of this bailout facility having cash commitments (which are mostly in the form of credits) from Eurozone members - most of whom will end up bailing out of the fund because they will be recipients of the Facility's funds themselves - being the starting point for Europe's rescue is, well, ridiculous.
It went from sublime to stupid when it was proposed that this inadequate fund, with money and credit supplied by those who were in need of its help, would further be leveraged by borrowing - (in a collateralized debt obligation "CDO" type structure... yes, those same CDOs in the same "special purpose vehicle" (SPV) structures that sank so many giant banks in the credit crisis, and are still stinking up balance sheets and off-balance sheet folders hidden in locked drawers) - let me say it louder, by BORROWING against their creditworthiness.
You have to understand how these structures are "tranched" and divided up, and who eats losses first, second, and so on, until the AAA tranche starts getting hit, to appreciate how fragile this type of debt vehicle is in the first place.
It's all about allocating cash flow (good luck with that) and giving investors comfort with some untrustworthy rating agency's coveted (I mean "bought") triple-A rating. Otherwise, who will buy this junk?
The cascade of credit downgrades changes all the dynamics of what has been talked about. If France gets hit with a downgrade (and it eventually will), the Germans will essentially be left holding the AAA bag. The other AAA credits in Europe are too small to count.
So, the Eurozone crisis comes down to the Germans, in the final analysis.
Oh, and in case you were wondering why markets around the world fell last week, you can thank the Germans.
It's not that they did anything wrong; it's that they didn't do anything, other than send mixed signals from every corner of the country about what they would or would not do to save the Eurozone.
Amidst all their Teutonic consternation, they had a little multi-billion euro 10-year bund offering. And nobody came. Well, not "nobody;" it's just that 35% of the auction saw no bidders. That means they couldn't sell their bunds at the interest rates they were offering to pay investors.
That's not bad - that's beyond "scary" for global credit markets, starting with Europe.
Of course, while the Germans were marching to their own drummers, Rome was burning.
Italian two-year paper was auctioned off at 7.7%; its five-year paper went for 7.8%; 10-year paper sold at 7.3%; and $10.67 billion of six-month paper was only able to be placed with investors who would accept nothing less that 6.5% for their six months of risk.
Just a few weeks ago, Italy's six-month paper was yielding 3.5%.
Are you getting scared yet? Are you starting to see how I see things?
My forecast is for ominous darkening.
I'll keep a light on for you.
[/FONT]
[FONT=Georgia, Times New Roman, Times, serif]Today's Forecast: Ominous Darkening[/FONT] [FONT=Arial, Helvetica, sans-serif]
by Shah Gilani
[/FONT] [FONT=Arial, Helvetica, sans-serif]Dear Reader,
The problem I have with providing "insight" into the market is that the deeper I look, the darker it gets.
Right now I can't see through to the other side. It's just that murky everywhere.
Not only did the S&P 500 fall 56.98 points (or 4.7%) last week, but it broke important support at 1160, ending Friday at 1158.67. The benchmark also broke its 50-day moving average back on Monday.
Cumulative breadth (advancing issues minus declining issues) has been tanking.
And speaking of slip-sliding away, third-quarter GDP growth here in the U.S. was revised down to 2% from the previously reported (make that estimated) 2.5%.
Downward pressure was evident across the globe, in terms of GDP growth expectations, sovereign creditworthiness, and stock markets.
In fact, I can't find any equity benchmark anywhere in the world that rose last week. That's because there wasn't one.
What there was a lot of last week - and what there will continue to be a lot more of - is mounting fear that the European Union is about to become unglued. The Eurozone is already being held together with nothing more than Band-Aids and hope, but increasingly those Band-Aids are falling off.
[h=3]Slight cuts sometimes end up being the deepest.[/h] When any ratings agency starts cutting a country's creditworthiness, it's never the case that, within some reasonable period, and without any further downgrading, the subject's ratings miraculously jump back up to vaunted status.
It just doesn't happen. It usually goes the other way.
So it was last week for Hungary, which got cut to junk by Moody's, and Portugal, which got cut to junk by Fitch. Those ratings cuts cut deep.
But I was more concerned, and you should be too, about Belgium being cut a notch by S&P. Belgium and France just stepped up with a more than $100 billion commitment to assume the liabilities of the recently declared insolvent Franco-Belgian lender Dexia.
No-one knows what the lender's real bailout needs will be; that's going to be a matter of its portfolio of loans and how they perform or don't. Now with Belgium being downgraded, the backstop falls more on France, which is itself facing a threatened downgrade by Fitch.
France's creditworthiness being cut from triple-A would send shivers down the collective spines of creditors to Dexia, not to mention the rest of Europe's banks.
The whole idea of leveraging up the European Financial Stability Facility to essentially bring its bazooka power to something like a trillion dollars, or two, is predicated on the creditworthiness of the backers (the European nations with creditworthiness), meaning their AAA ratings.
Increasingly, the idea of this bailout facility having cash commitments (which are mostly in the form of credits) from Eurozone members - most of whom will end up bailing out of the fund because they will be recipients of the Facility's funds themselves - being the starting point for Europe's rescue is, well, ridiculous.
It went from sublime to stupid when it was proposed that this inadequate fund, with money and credit supplied by those who were in need of its help, would further be leveraged by borrowing - (in a collateralized debt obligation "CDO" type structure... yes, those same CDOs in the same "special purpose vehicle" (SPV) structures that sank so many giant banks in the credit crisis, and are still stinking up balance sheets and off-balance sheet folders hidden in locked drawers) - let me say it louder, by BORROWING against their creditworthiness.
You have to understand how these structures are "tranched" and divided up, and who eats losses first, second, and so on, until the AAA tranche starts getting hit, to appreciate how fragile this type of debt vehicle is in the first place.
It's all about allocating cash flow (good luck with that) and giving investors comfort with some untrustworthy rating agency's coveted (I mean "bought") triple-A rating. Otherwise, who will buy this junk?
The cascade of credit downgrades changes all the dynamics of what has been talked about. If France gets hit with a downgrade (and it eventually will), the Germans will essentially be left holding the AAA bag. The other AAA credits in Europe are too small to count.
So, the Eurozone crisis comes down to the Germans, in the final analysis.
Oh, and in case you were wondering why markets around the world fell last week, you can thank the Germans.
It's not that they did anything wrong; it's that they didn't do anything, other than send mixed signals from every corner of the country about what they would or would not do to save the Eurozone.
Amidst all their Teutonic consternation, they had a little multi-billion euro 10-year bund offering. And nobody came. Well, not "nobody;" it's just that 35% of the auction saw no bidders. That means they couldn't sell their bunds at the interest rates they were offering to pay investors.
That's not bad - that's beyond "scary" for global credit markets, starting with Europe.
Of course, while the Germans were marching to their own drummers, Rome was burning.
Italian two-year paper was auctioned off at 7.7%; its five-year paper went for 7.8%; 10-year paper sold at 7.3%; and $10.67 billion of six-month paper was only able to be placed with investors who would accept nothing less that 6.5% for their six months of risk.
Just a few weeks ago, Italy's six-month paper was yielding 3.5%.
Are you getting scared yet? Are you starting to see how I see things?
My forecast is for ominous darkening.
I'll keep a light on for you.
[/FONT]