Business Magazine

Wednesday’s Worry: Greece NOT Fixed!

Posted on the 15 June 2011 by Phil's Stock World @philstockworld
ROFL Europe!Just when you think the US Congress is the most inept political organization on the planet – the EU Finance Ministers take things to a whole new level of crazy by calling an emergency meeting and then failing to accomplish the goal of that emergency meeting and, even worse, indicating that they are unable to resolve their differences and kicking the problem over to the June 23rd "Leaders" summit.  How can they be so stupid – don’t they know how much damage can be done in two weeks?  Actually, this is EXACTLY what the US Congress did when the Republicans voted down the bailout bill on September 26th, 2008 (remember how McCain flew in to be the "special negotiator") and the Dow had gone back up to 11,150 (see "Deal or No Deal Friday") on hopes the bill would pass but it dragged on into the weekend and they voted the bill down on Monday (see "Monday Mourning – Too Little, Too Late" and later that evening I pointed out that the failure to vote in a $700Bn bailout cost us over $1Tn in market cap that day) and we immediately fell 800 points that day and, just two weeks later, we were down 3,000 points thanks to the Republicans in Congress putting their own petty interests ahead of Americas.  Thank goodness we learned our lesson and voted those guys out, right?“We have to proceed very cautiously,” Luxembourg Finance Minister Luc Frieden told reporters after an emergency meeting in Brussels today, adding that “very clearly we have to go into that direction” of a delay to next month on a new aid package from the European Union and the International Monetary Fund. “Several options — from the IMF, as well as from the European Central Bank and from the European Commission — still have to be studied.”Pressure on euro-area governments to craft a rescue plan before their end-of-June goal intensified yesterday after Standard & Poor’s slapped Greece with the world’s lowest credit rating. The focus on averting the euro area’s first sovereign default now shifts to German Chancellor Angela Merkel and French President Nicolas Sarkozy to resolve their differences at a June 17 meeting in Berlin. ECB policy makers have warned against German proposals that maturities on Greek debt be extended for seven years, an outcome rating companies have said would be considered a default. ECB President Jean-Claude Trichet, who attended today’s meeting, said on June 9 that governments were flirting with what could be a “enormous mistake.”Europe’s markets are already down about 0.75% after last night’s debacle and Moodys is now warning on France’s 3 largest banks over their exposure to Greek sovereign debt and has warned that action on other banks would soon follow.  This, of course, has sent the Euro flying back down, hitting $1.426 at 8::30 this morning and the Pound fell off the cliff as well at $1.622 and still falling!  That, unfortunately for us, is driving the Dollar higher (75.6) and tanking the US markets again.  Also not helping our markets this morning is the May CPI Report, showing 2% on the headline number and a whopping 0.3% in the core – which even The Bernanke will be unable to deny is BAD.  Real earnings, of course, completely fail to keep up at 0.1% and, in fact, real earnings are DOWN 1.6% fro the year.  Over the last decade, the share of U.S. national income taken home by workers has plummeted to a record low (see chart on left).  How much abuse will the once-proud American people take at the hands of corrupt politicians and greedy capitalists?  How long can crap be sold as candy to ignorant voters?  Amazingly – it’s a lot longer than a rational person would think (we voted all those Republicans back in, didn’t we?).   Why are workers taking home such a reduced share of the pie? Opinions differ, but many experts think that the trend has to do with a number of factors, including a decline in the bargaining power of labor, and increased competition from foreign workers. Similarly, over the last year or so, U.S. companies have made record profits, while unemployment has stayed high and wages have barely risen.  The chart jibes with other data, which show that since the 1980s, income for the richest 1 percent of Americans has exploded, while hardly budging at all for everyone else.Speaking of greedy capitalists – on the bright side, today’s dip means we will have another chance to sell the Dow puts we looked at in yesterday’s morning post.  As a group, our 12 picks made $1,850 yesterday alone (out of $19,840 possible, if they stay on track) and they were excellent hedges for our downside DIA play, which we decided in Member Chat would be naked puts as we were over the 12,000 target for the bear put spread we discussed in the morning (but we can still take it today if we fail!).  Also in yesterday’s morning post was a trade idea for the USO July $39 calls at $1.10 took us took us to $1.35 before we got nervous but they finished the day at $1.40 for a 27% gain on the day – not bad for a Tuesday…We flipped bearish at the end of the day yesterday as we hit some of our upside targets on our charts and we’re glad we did as we have yet another TERRIBLE bit of US Stagflation News is the June Empire State (NY) Manufacturing Survey is DOWN 7.79 from up 11.88 in May and up 13 expected by economorons – although a miss of only 159% is pretty good compared to the predictions we usually get from those "in the know".  Today’s action will be all about whether we can hold our 2.5% lines on 3 of our 5 indexes.  Despite all the drame, we are playing oil UP this morning above the $98.50 line – we already played them from $98 to $98.50 in early Member Chat and we’re hoping for a big run into oil inventories so we can flip short again – hopefully at $100.60 or higher.  Speculators at the NYMEX are hoping for a net draw of roughly 2Mb at 10:30, anything less than that will be a disappointment, no matter what fake upside move they make on the initial announcement.  Also, while bad for the PRICE (not value) of equities and commodities overall, the pre-market move in the Dollar up to 75.56 is actually like rocket fuel that is being stored up to propel the market higher if they can bend the dollar lower.  At 10am we have the Housing Market Index and, possibly, that news will be so bad it will be good for the market as people will say that QE3 HAS to be on the table after such a horrible report.  Yep, it’s that kind of market – be careful out there!   

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