Remember Spain and M15. The movement is back, and this time, maybe even more powerful. As we have argues over the last months, Spain is the biggest threat to stability in the Mediterranean. Watch Spain closely. EL Pais reports.
Tens of thousands of people marching from different parts of Madrid converged on Neptune square, near Congress, to protest the way politicians are handling the economic crisis.Despite the heat, around 40,000 Spaniards (according to a measurement taken by Lynce for Efe news agency at 2.20pm) marched peacefully, chanting slogans such as “We’re not paying for your crisis” and “They call it democracy but it’s not.”
The massive demonstration was proof of the undying spirit of 15-M, the grassroots movement that began as a protest against political mismanagement of the economic crisis on May 15, and later gave way to prolonged sit-ins in squares across the country, most notably in Madrid and Barcelona. When those camps were dismantled a week ago, some wondered if the movement would fizzle out. Instead, new marches are being scheduled to depart for Madrid from different cities on Monday.
The immediate goal of Sunday’s demonstration was to protest against the Pact for the Euro, involving fiscal reinforcement through a new set of reforms, including cuts to wages, pensions and social benefits. “Another brutal cut is on the way,” said Luis Fernández, a member of Adesorg, an association for the unemployed. “This is where you see the power of banking over countries. They’ve sold the country; it no longer belongs to Spaniards, but to the European banks.”
Some sentiment charts by Technical Take.
The battle lines are clearly drawn. On the one side, investors have turned bearish citing the usual (and real, I might add) factors including but not limited to sovereign debt, Greece implosion, the weakening US economy, unemployment, the end of QE2, the start of QE3 and on and on. Yes, they are real reasons for concern, but truth be told and as I have pointed out before, they are nothing new on the radar. On the other side of the field, the bulls’ main argument is the bears. Actually, it is the bears’ extreme opinion about the prevailing headwinds facing this market. From a bulls’ perspective, bearish extremes in investor sentiment are typically a good sign for higher prices.
So what is an investor suppose to do?
From this perspective, which is a data driven one, I believe that the market will bottom. The nature of the subsequent bounce and/or rally is always a concern as I don’t pretend to have a crystal ball. The market really isn’t too far off its highs, and other measures of sentiment (as detailed below) have yet to line up. I suspect they will over the next week. The bears could be right here, and if so, then so be it. However, my expectation based upon the data is that they will regret having sold. What is clear is that failure of the market to bottom and subsequently bounce would be an ominous signal.
The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is extremely bearish.
Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Driven by insiders at Russell 2000 companies, market-wide sentiment improved demonstrably as the number of sellers declined more than -42% and the number of buyers increased approximately 10% from a week earlier. An Industry Buy Inflection – a quantitative indicator of a significant positive acceleration in insider sentiment – was triggered in the Russell 2000 and this has historically been a sign that the market is closing in on a near-term bottom. From 2004 through 2010, the triggering of an Industry Buy Inflection in the Russell 2000 “caught” 11 of 13 bottoms and the index rose an average of 4.2% over the following thirty days.”
Get ready for some FX volatility this week. Don’t forget moves will be exaggerated by the Dodd Frank rules which seem to imply less FX dealing for Hedge Funds.
European governments weighed withholding half of Greece’s next 12 billion-euro ($17.2 billion) aid payment, seeking to keep the country solvent while maintaining pressure on the government to slash the debt that pitched the euro area into crisis.
Euro-area finance ministers may authorize only a 6 billion- euro loan to tide Greece through bond redemptions in July, while further aid hinges on Greek budget cuts, Belgian Finance Minister Didier Reynders said.
“We will in any case try to release the necessary funds for the short term,” Reynders told reporters before a meeting of euro-area finance ministers in Luxembourg tonight.
Europe’s financial brinksmanship ran in parallel with Greek Prime Minister George Papandreou’s effort to save his government from collapse and win parliamentary backing for spending cuts, tax increases and state-asset sales needed to keep bailout funds flowing.
Tonight’s euro-area finance ministers’ meeting coincided with the start of a three-day Greek parliamentary debate in Athens over a confidence vote in a new cabinet at what Papandreou called a “critical crossroads.” Papandreou has 155 seats in the 300-seat parliament.
Papandreou said he planned to hold a referendum later in the year for changes to the constitution that would reform the political system in the country. The prime minister said his goal was to tackle the root causes of the country’s debt and deficits that are “symptoms of the illness, not the cause.”
Rarely has the backdrop been so lousy. The U.S. is printing money to pay its bills. Europe is coughing up change to pay the neighbors’ bills. Oil prices are climbing as the Middle East burns, and gold, that reliable barometer of fear, is rising almost by the day. And yet. American companies are flush with cash. Corporate revenue is growing, profit margins are widening, and stocks — especially big ones with juicy dividends — are relatively cheap.
That delicious irony hasn’t been lost on the members of the Barron’s Roundtable, whose opinions we rounded up by telephone in the past week or so. In view of the alternatives, chiefly negligible bond yields, U.S. stocks just might be “the best house in a decent neighborhood,” as Oscar Schafer observed.
The Roundtable crew is unanimous in seeing slower economic growth in the year’s second half. As a result, these money managers and market savants have turned notably more defensive since our annual get-together in January at the Harvard Club of New York. These days they are far fonder of consumer-staples, health-care and utility stocks than the shares of companies that make things that rust in the rain.
Our panelists have their eye on the near term, when we’ll inevitably muddle along, and on the long term, when economic calamity could befall us if the nation doesn’t first mend its profligate ways. How to do so is apt to be the subject of increasingly urgent discourse as 2011 rolls into 2012 and the presidential election.
The discussions that follow should help to explain why the best investors worry so much about the big picture, even as they take their dividend checks to the bank. For the whole picture, please read on.
Below full interviews with some of the world’s greatest managers.
Greece, austerity, bail out, Papp here Papp there. What is Greece actually about? Considering the size of the Economy, somebody sure must be able to fix this mess, or is Greece just simply the wrong focus? Could it be there is a much bigger problem, that is much harder dealing with, the European banks and the ECB?
News have just been intensyfing over the last weeks. During last week, Moodys warned of French Banks and S&P downgraded some Greek Banks.
Warnings are coming out, due to the fact, if Greece was to default, these financial institutions would fail or take massive losses. This would all of course spread to other banks and we would once again get that Lehman feeling, where nobody trusts nobody, and liquidity vanishes. Watch the Libor OIS spreads going forward.
A default, or a restructure is delayed by imposing Austerity, forcing Greece to sell assets at fire sale prices. This issue has now become rather political, as we saw Mr Papp reshuffle the cabinet, all according to EU’s demands. End result will only be more riots and ultimately a collapsing economy.
But why is Greece so important? A year ago we got the message, ECB was to support the system by twrowing in some 750 billion Euros, in order to stabilise the banks, and make the banks lend money to companies, who would ultimately start producing and getting the economy going. This never happened. Taxpayers money was used to support countries having acted irresponsibly, all in order to save the flawed currency, the Euro.
ECB became the lender of last resort, ended up buying toxic crap, and accepted these toxic assets as colleteral for short term funding. This is the only thing the ECB could do, and had to do, if PIIGS were not to fail.
So what happened, these banks lent money to the troubled nations, instead of the companies that would kick start the economy. Everybody was happy, banks borrowed from the ECB at low rates, and lent this money to PIIGS at higher rates. The Banks made nice money, the troubled countries got to borrow despite their budget problems, and the ECB had saved Europe. All was good, until people realized what was going on, and started selling government bonds and sending borrowing rates for these countries soaring.
As we wrote some weeks ago, the organization Open Europe, says ECB has some 400 billion euros exposure to the four most troubled contries. ECB is leveraged some 24 times, Lehman was leveraged app 30 times. A restrucure of the Greek debt, would leave the ECB insolvent over night. If this happens, Lehman will look rather pale to what could come out of the European mess. On the other hand, let’s not get overly pessimistic about Greece and Europe, US has even greater problems. Welcome to the return of Volatility.
The biggest elephant in the European room, still Spain, is showing some discouraging figures. As thetrader has argued, Spanish property sector is very bad, and needs some great revaluation. El Pais reports;
House prices in Spain declined at a speedy pace in the first quarter of this year, showing the biggest drop since 2007, when the country’s housing bubble burst and devastated the economy.In a statement, the National Statistics Institute (INE) said that prices during the first quarter fell at 3.5 percent, or a 4.1-percent annual rate.
The sharp decline is being blamed on the government’s elimination of tax incentives for home purchases, which was part of Prime Minister José Luis Rodríguez Zapatero’s cutback package, introduced to try to rein in the gaping deficit.
The INE also blamed last year’s hike on valued-added tax (VAT), which has discouraged many buyers. Only in 2008 did house prices come close to similar falls.
In April, figures supplied by the Public Works Ministry showed that in the first quarter of the year house prices fell by a 2.5-percent quarterly rate, and a 4.6-percent annual rate.
This is happening in USA, not some MENA country that people don’t have a clue existed. Although tragic, the reading below gives some insight into how tired of the system some people are. Remember how the MENA situation started?
Editor’s note: On Thursday morning, June 16, The Sentinel received a “last statement” via mail from a man who insinuated that he planned to set himself on fire in front of the Cheshire County Court House, and an explanation of why he intended to do so. Through further reporting, The Sentinel is confident this is from the victim of Wednesday afternoon’s fire, although police have not yet received confirmation of his identity. The 15-page statement is printed in full, except for two redacted items: The names of the man’s mother and his three children. Details will be posted as they become available.