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Sunday, September 25, 2011

Market Thought... a plan?

On Saturday, chatter of a "firebreak" plan emerged. The article states a solution will be unveiled in Cannes on Nov 4th.

On Sept 6th I highlighted what I was waiting for:

1. The amended EFSF that can be used to capitalize large EU banks.
2. Forced bank mergers, with re-capitalization, like what happened in Greece recently.
I will look to cover my SPY protection tomorrow, and with a potential Euro rally due to this news, add to the FXE puts.
On a side note: 
I keep hearing chatter that the current stock move is from a drastic slow down in earnings.  People can speculate all they want, but the proof is in the pudding. Right now, based on what we have seen, the data does not justify "drastic" slow down. 
For instance, Nike had a solid quarter, as did Finish Line. Also, rail traffic is good and a rising Baltic Dry Index indicate the macro is not as bad as some have pounded the table on.

Lets not forget the steps of easing from emerging economies, and the fact that growth is still taking place. For instance, South American economies are still projected to grow near 4%.  
And those preaching a drastic slow down in China need to ask themselves a serious question. Will a country with +$3trillion at their disposal, that politically needs to keep economic growth around 8-9% to maintain a level of stability amongst its people, allow for a debt crisis (with respect to their banks) get out of control?
As for the collapse in commodities, I think that has to do more with the dollar activity than a global slow down. I think a lot of commodity players were completely caught off guard as the dollar began to spike from the flattening of the yield curve.  (Prior to the market players positioning for a yield curve flattening, Gold and the Franc were the currencies to play for the EU crisis.)  Other commodities like Copper and Steel maybe taking a bigger hit because of the localized issue in China's real estate market.

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