All attention is riveted on the birthplace of democracy and the cradle of Civilization for the pending 'Big Fat Greek Referendum' - or not! Leadership in Athens are changing their minds about a historic vote faster than wedding invitations to a Kim Kardashian wedding.
The epic motion would be a vote to either partially or entirely 'welch' on their collective responsibilities. It is a long overdue great question in which an enormous cast of self interested business and government leadership should be held to account!
A vote that would be a final watershed moment which highlights reckless and irrational public policy as it gasps for its last & final few precious breaths of subsidized life. The painful moral of this sad tale will be when the lenders (of last or final resort) hold their own referendums on, if and when, they remove terminal debt nations from life support systems.
I am all for the good old town hall referendum process which clearly and democratically decides significant matters. It should be standard fare for all financial matters over and above the net worth of any elected Potus. 'Referendi' removes the burden of responsibility/temptation from 'motivationally challenged' elected officialdom! Most importantly it returns the power of rule to the people and away from self interested fascist leadership. Unfortunately political types of all spots & stripes are exceedingly reluctant to cede power and return to any form of pure democracy such as the referendum process.
Faced with unpalatable debt solutions and unsavory repayment alternatives Greek President G Papandreou unilaterally decided to lay his complex fiscal nightmare at the feet of his (non) tax paying citizens. A vote which clearly defines the moral character and fortitude of socialist leadership an its quasi Marxist citizenry!
It might have been handy though if the Greek kleptocracy decided to hold a referendum 'prior' to recklessly borrowing billions of euros and spending themselves into oblivion. A simple 'pre-borrowing' question asking the people if they had any interest in repaying the leveraged banking system who fatefully financed the free for all.
It sure would be interesting if the referendum included a vote on reducing or ending an obviously failed socialist welfare state experiment in order to allow free and open 'unstimulated' markets to repair excesses and mend the ugly debt chasm left behind. A clear rational motion on significantly reducing the bloated size of a seriously flawed governmental model of mindless spending, irrational irresponsibility, and criminal unaccountability. I won't hold my breath in anticipation for that to happen!
It is demoralizing to see how various infected abusive political systems have distorted the first principals of freedom, business, and enterprise. All credit cards should have limits. Creditor nations should have demanded this referendum long ago! They sure will next time!
As I dream about what should be, the fearless G20 types gather in plush quarters in Cannes mapping out possible 'ring fenced' exit scenarios for the free loaders from the Aegean. Evidently the EU 'can get over and live without' their Greek brothers? Reports from Cannes (not) suggests that an IMF financing agreement was DOA and nada uno member had any interest in participating in the 'leveraged' EFSF bank rescue scheme. Newly minted ECB chief Super Mario Draghi, (former vice chairman and managing director Goldman Sachs), in a major change of Euro inflation fighting direction, cut its key lending rate by 25 basis points to 1.25% in the hopes to offset G20 inaction.The 'behind closed doors' meeting of the Terrific Twenty hopefully will call out the dithering Greek PM to make an example of those who think only in 'political' terms! Portugal and Spain would not be as likely to be as indecisive. Italy is likely to do almost anything - and likely will! PM Bunga Bunga has even halted the release of his latest Love Serenade CD! He will need all the sweet lyrics he has got to improve Italy's rapidly falling GDP/capita and refinance the 310b+ euros of debt maturing in 2012. Germany has totally lost its infectious sense of humor and joie de vive! The French stand at the ready by their ATM's should the debt 'merde' hit the fan! China will do exactly what it wants to do without the emotion or drama & minus the referendum solution. G20 members (China) have no interest bailing out any other countries banker's IOU's. And the first place Leaf's (9-3-1) aren't sure aren't sure what to do or say! Can life get anymore interesting?
We get to celebrate with the fine 95+ million Filipino people for creating our 7 billionth world citizen - Danica May Camacho. Her joyous parents were presented with a chocolate cake and a gift certificate for free shoes for their fine efforts. There is beauty in simplicity!
In the US, a fragile and shaken financial sector was rocked with the shocking news of how the 200 year old MF Global Holdings Ltd. was destroyed with yet more spectacular recklessness. MF Global (was) a global powerhouse commodities brokerage run by (former Goldman Sachs CEO) J. Corzine. He was appointed in March 2010 and decided to transform the derivatives agency broker into more of an investment banking Goldman Saks type clone. A $US6.3 bet on European Bonds based on '2007 like' 40x's leverage vaporized all of MF's capital before you could say 'au revoir.' MF Global was recently selected to be in the elite group of US Treasury dealers. Billionaire Mr. Corzine (Dem) gave a sermon last year to the Princeton faithful about the compensation sins of Wall Street. He stands to collect $12.1m for 19 months of stellar duty and stewardship with the now former MF Global. It is reported that he may decline such largess and is well 'lawyered' up. Lots of money is 'missing' and it looks like he will need all of his 'political relationships' to circle their protective wagons. Once again, the compliance and regulatory world is conspicuously absent from the proceedings.
After two sharply lower profit taking days early in the week US equity markets rallied back challenging the October recovery highs registered last week. Recent economic stats have been mixed to positive. Non farm payrolls for October increase less than expected at +80k with the unemployment rate little changed at 9.0%. The US needs to generate over 250k jobs per month until the end of Obama's 'second' term in order to return to pre-recession/depression employment. Sounds like lots of 'hope and change' to me!
SM non-manufacturing data was 52.9 for October with a median forecast of 53.5. Factory orders rose slightly 0.3% for September with a median forecast of -0.2%. Levels of production and new orders fell slightly over the month while new export orders declined at the quickest pace for almost two-and-a-half years. The employment index encouragingly jumped from 48.7 to 53.3%.
Fed head B. Bernake solemnly declared that he was 'also' an unhappy camper about the sluggish US employment growth while reiterating his 'significant downside risks' to economic outlook mantra. The Fed is looking for 2011 GDP of between 1.6-.7% and 2.5-.9% for 2012. They expect 2011 unemployment to drop marginally from between 9.0-.1% to 8.6-.9% in 2012. Bernake skirted both the MF Global meltdown and Greek referendum issues in typical political fashion. No change in FOMC policy was the order of the day and continuation of the very business friendly interest rate structure until 2013.
On the week the DJIA closed down -2.8% but up +2.6% YTD. The S&P 500 closed down -3.1% and down -1.1% YTD. The NASDAQ closed down -2.4% on the week and almost unchanged on the YTD.
In commodities, Gold has resurrected it role as the #1 'non printable' currency amidst the Euro financial non-action. Gold has rallied (+.50%) into significant resistance in the $US1,770/oz to $US1,810 area. Central Banks have quietly been buying gold at a frenetic pace having purchased over 200 tonnes this year. The various money printing stimulus programs, zero interest rate mandates, and assorted 'twist' schemes has created a potentially (probable) high risk inflationary environment. Silver continues to consolidate in the mid $US30/oz range. $US37-39/oz represents significant over head resistance for Silver. $US30-32/oz represents considerable intermediate support. After last weeks' power rally for Copper the red metal has consolidated in the $US3.50-.65/lb range. I favor Copper to rally back into the low $US4/lb range in this positive hard asset environment. Crude oil remains range bound in the low $US90/bl level as relentless demand challenges the growth of supplies. A move above $US95/bl for Crude Oil could be explosive on the upside. The Agra/Grain sector trading has become much more subdued and is quietly consolidating in tight trading ranges. Seasonal factors should provide evidence of long term trading trends before long.
In Canada, major props go out to no other than our BofC chief Mark Carney, (former investment banker Goldman Sachs), for being named as head of the global banking regulator FSB. Conservative Canadian banking principals may have arrived a tad late now that most Euro regimes are deeply on the dole and are inextricably linked to each other. Carney will remain as BofC head and only part time his FSB role. His skills & patience will be well tested.
The Canadian economy shed an unexpected 54,000 jobs last month. The expectation was for a gain of 15,000 new workers. The unemployment rate now stands at 7.3% from 7.1%. Hopefully this is nothing more than a seasonal one-off report and not the beginning of a long term trend. Canadian GDP grew 0.3% in August better than consensus expectations of 0.2%
It looks like the $3.8b marriage of the TMX and banker/broker led Maple Group is about to be consummated. It will be interesting to see how the regulators deal with the obvious vertically integrated monopoly implications of this cozy deal. Resource earnings for miners and oil & gas companies were outstanding this week as expected. AGU, CNQ, TLM, ECA, K all blew away expectations and in some cases raised dividend payouts. Grande Cashe Coal is lifted from the exchange in a $1b (60+% premium) all cash deal from a partnership of Chinese and Japanese companies. The takeover and merger environment in the resource sector is expected to remain robust through 2012. CP has a new 'activist' shareholder (Pershing Square Capital) on board to deal with which should make board meetings much more animated. Beleaguered smart phone manufacturer RIM reported that their share of the US handset market share dropped to 9% from a high of almost 40%.
The S&P/TSX closed down -1.0% on the week and almost -8% YTD. The S&P/TSX Venture exchange of small cap resource stocks closed up fractionally on the week and a walloping 600 points or -30% lower YTD.
Bottom Line, 'Trim Tabs' reports that since the beginning of 2010 corporations have been buying back $US2b/day of their own stock while fund holders have been redeeming $US800m/day of their holdings. 'Trim Tabs' has calculated that since 2009 corporations have sold $US3T of their bonds and $US800b of equity to the public. Corporations have been using this extraordinary period of record low interest rates to borrow and repurchase what they think to be is undervalued equity. The pool of quality investment is rapidly shrinking as outstanding equity is purchased from the public. As economic conditions improve corporate repurchase programs will continue to be a significant driver for higher stock prices and valuations.
The Euro debt mess, as muddled and complex as it appears, is heading toward an inevitable (Goldman Sachs inspired) resolution/conclusion. To this point it appears that some kind of 'controlled' inflationary plan is the desired course of action. I doubt that any tabs will be covered!
It is suggested that the Federal Reserve Board should target a 'nominal gross-domestic-product growth rate' of 4.5% to decide how much money to inject into the economy. Concerns of real vs inflationary growth and associated price stability become a low priority immaterial consideration. The newly 'acronymed' NGDP scheme of 'creating' money in a 'variety' of methods smacks to me as nothing more than the same concerted Keynsian plan of unbridled inflationary 2-ply paper printing. The US plans to issue $US846b in Treasury's in the next 6 months : +35% more than the previous 'stimulated' year. It looks like the Fed is walking through its open stimulus door once again. We may be closer to dealing with inflationary challenges than we think.
I continue to favor hard asset and inflation sensitive sectors in this monetizing environment. Interest rate dependant sectors will be challenged to perform as financial markets demand more real return 'on' capital - and ultimately the return 'of' capital.
'Creditors have better memories than debtors.'
Benjamin Franklin (1706-1790)
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