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Thursday, August 25, 2011

Market Thought... on you, EU

The shadow boys decided to pounce.  Before I talk about today, lets just recap.  On August 1st, there was very weird action on 08/01/2011 on the DAX that caused extra weakness on equity markets in the US. (I mentioned it that day.)

At the time, it was a 100pt move in about 2 minutes.  This day started the awesome decline in the DAX in August.

Today, was no different than the 1st of August, however today, the decline was more severe intra-day around 3:45 despite relative stability through out most of the day.

These type of declines are rooted in the EU inspired credit freeze threat, and today we got plenty of chatter about EU banking stress: 

-There was a WSJ article about the lending increase via the EU banks from the ECB.  EU bank(s) increased lending to 2.82B Euros from 555M Euros a day earlier.

-Greek's central bank activated an emergency liquidity program for Greek banks.

-$500M was used from the Fed's emergency liquidity window.

-Merkel cancels a trip to Russia to ensure the Euro Financial Stability Fund amendments get approved.  The article highlights that the new amendments, which should provide a few months of stability, should pass. But articles like this cause uncertainty, none-the-less.

The markets will continue to have these crazy swings until real plans are put in place (and actively executed) to cause stability. If the EFSF is amended to increase the fund, bailout the banks and add more funding for the sovereign market, then that will cause a few months of stability. (There will be too much money in the fund for any manipulators to try to fuck with, at least for a few months.) This should allow markets to rise as per economic data and individual company/stock merit, at least for a limited time.

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