ECB pledges to do "whatever it takes" to preserve the Euro

Mario Draghi, president of the European Central Bank has reiterated today his commitment to the preservation of the common currency by hinting at upcoming supportive measures. Mr. Draghi said today during a conference in London that the ECB is prepared to do "whatever it takes" to keep the euro-boat afloat. The announcement sparked a relief rally in  risk assets such as the EUR/USD, the S&P500, Gold and Spanish yields. But, without hard facts, the rally will most likely be short lived.

Schadefreude as post IPO Facebook sells-off

Early investors in the over-hyped social networking portal Facebook could not be happier: they managed to cash out most of their stakes while the company was in the extremely overvalued price range. The recent initial public offer raised $16 billion, at an initial price of $38. According to that share price, the internet company was valued at $104 billion, with a price earnings ratio of almost 100 times the expected profits of 2012. Google, a proven internet advertising and search engine giant is valued at 13x earnings. Is Facebook still overvalued ?

Greek debt deal 95% agreed

A major breakthrough in Greek debt talks was reached today as investors representing 95.7% of Greece`s privately held bonds agreed to restructure their bond holdings without being classified as a credit event and thereby not triggering the underlying credit default swaps. Out of these 95.7% of bond, investors holding 85.8% of bonds have voluntarily agreed to swap their current depressed bonds with new, lower yielding, higher maturity bonds, and the rest will be forced to accept the restructuring under invoking collective action. Where to now ?

Wednesday market outlook

Interesting times we`re trading in. The markets are screaming for an impeding correction, but as the global printing press pumps liquidity into the markets the game of musical chairs has no choice but to continue. What will happen when the music stops and all these injections will prove they have diminishing returns? Until then, let`s take a look on what the markets did this week: gold has managed to hold the bullish channel it entered on the 22nd of February, the S&P looks like a rabid bull and the effects of Bank of Japan`s massive intervention on the yen seems to be wearing off.

Short S&P500 @ 1339.7

I`m entering a short position on the S&P500 as of now at the $1339 level. The QE2.5, Operation Twist, LTRO and MBS repurchases are starting to wear off. Stop loss at $1360. Target at $1291.

France downgraded to AA+ and what it means for the rest of EU

In a move that only confirms what the rest of the world already knew, financial ratings agency Standard and Poor`s downgraded Friday 9 of the Eurozone countries: Cyprus, Italy, Spain and Portugal by two notches and Austria, France, Malta, the Slovak Republic and Slovenia by one notch. By far the biggest implications are for the downgrade of France from its triple A status to AA+ because it will consequently mean that its EFSF guarantees will not be as high rated as before and threaten to bring down the AAA status of this special investment vehicle.

S&P and precious metals outlook

Last year ended in a rather odd way: it seems that the bounce-back effect of the stock market faded away and, as a result, the S&P500 and the DOW ended almost flat for the year, albeit on the negative side. The precious metals plunged in December below the 200 daily moving average, which has been a support level since 2008, a rather bearish move, and since unsuccessfully tested the 200 EMA once. The picture is still blurry, but this Friday closing prices should provide a better image.

Bank of America breaks the 5$ Maginot line

There was a wide debate going on whether the Bank of America stock price will drop below the 5$ psychological support level. It was deemed as protected by a vast amount of bids and though as the point of no return signalling a market correction. Now it happened folks: BA dropped to 4.95 and it is currently holding that level, which means we are in store for a correction in the US equities, a correction most probably caused and led by the financial sector. This could actually be the market sell-off that Bernanke is waiting for to allow him to announce QE3 in January.

Bullish economic data, just in time to save equity markets

Just after a major sell-off in precious metals (during which I was stop-loss-ed) and a slump in the S&P and the Dow, "good news" about the health of the economy surfaced: the initial and and continuous unemployment claims printed lower than expected, the the Producer's Price Index (PPI) signaled a mildly increasing inflation, an increase in manufacturing orders from -2.07 to 5.10 and a lower overall current account deficit. This coupled with FED chairman Bernanke's faith in the strength of the US economy suggests that the economic outlook has to get a lot worse before he will pull out more monetary firepower.

Europe divided (again)

David Cameron, the Prime Minister of UK managed to stir the markets up a bit yesterday by vetoing the new EU treaty. The accord was meant to turn the European Union into a fiscal union which, in turn, would strengthen the common currency. After 10 hours of negotiation in Brussels, all other 26 member countries agreed to sign the new treaty, but as treaty rules say, in order to amend or change any parts a consensus must be reached.

China opened the flood doors by cutting reserve requirements

When the world screams for liquidity (shown by the increasing inter-banking swap rates), China comes to the rescue by lowering the reserve requirements and therefore unleashing a new wave of cheap money into the system. The markets responded very quick to this Chinese monetary stimulus, with equity and commodities spiking up, in a risk-on trade. Furthermore, in a following move, most of the leading Central Banks are now receiving USD swaps by 50 basis points less. Result: cheaper money.

Santa Claus rally in the S&P500 and FTSE100 ?

Now that the year is drawing to a close and the liquidity is thinner and thinner fund managers are preparing for their Christmas gift: a traditional year-end equity rally, to massage the bottom line. The S&P has seen December rallies in 4 out of the last 5 years and 2011 is most likely not going to be an exception.

I wouldn't bet the farm on a sustainable growth though, because after the punch bowl empties out, there will most likely be a hangover on the stock market.

The $1.2 trillion deadline: 23 of November

We are approaching a big day, ladies and gentlemen. It is the 23rd of November when US budget committee will have to agree on budget cuts of at least $1.2 trillion dollars over the next decade. The 12 members of the committee, both Republican and Democrats, will have to decide on measures that would curb spending and increase the fiscal intake. While the US public debt recently crossed the $15 trillion yardstick, and the  $54.5 trillion total government debt which includes unfunded liabilities like Medicare, Medicaid and toxic mortgages still held at Freddie Mac and Fannie May still in full swing, it is business as usual in Washington.

One more sell-off before QE 3

Today was one of those days that raise my blood pressure to extreme levels. The risk instrument markets sold off, with the S&P 500 going down 1.55% to $1216 and with Gold crashing 3.14% to what is now $1716. Long term chart damage has been done in both of the instruments and it can be taken as a sign of trouble to come: the utter failure of the US budget committee or the failure to bail-out the insolvent Italy. At this point FED is waiting for a major sell-off in equities before announcing another QE programme.

Gold "beware": Better than expected initial jobless claims at 390.000

The number of US citizen filing for unemployment benefits fell last week  to the lowes figure recorded in 7 months. They printed at 390.000 (in seasonally adjusted data), down 10.000 from last week's figure. There were 398.753 initial claimants under state programs, without any adjustments, in the week ending with November 5, an increase of 29,106 from previous week. According to the Bureau of Labor Statistics the official number of unemployed citizen is still at 13.9 million, adding up to an unemployment rate of 9.0%. There is simply not enough job creation and not in the right sectors.

FOREX update: All roads lead to Rome

So much erratic behavior on the FOREX markets today as the European contagion has definitely spread to Italy. Berlusconi has yet to resolve the political crisis which his country is facing as the austerity measures have not been voted by the dwindling majority. As a result, 10 year Italian bond prices have soared past 7%, a level at which Greece was already asking for European bailout and without quick measures Italy will follow the same path.

Berskshire's Q3 income brought down by derivative losses

The holding company managed by billionaire investor Warren Buffet, Berkshire Hathaway Inc. (BRK/A) announced that Q3 profits declined by 24% due to the index derivative bets. Warren Buffet speculated on the long term recovery of the stock market (through several global indexes such as the S&P500 and the FTSE100) by selling puts on the indexes. Needless to say this derivative position is in the red for about $2 billion according to Warren Buffet out of  $4.9 billion position.

Greece, wadup? Problems ?

It took a while for the financial markets to cool of from the Greek debt concerns (especially as the credibility of the European Rescue Fund is close to zero without IMF, Chinese, Russian and Brasilian support). I hope you enjoyed the brief silence, cause last night George Papandrou decided on the 31st of October (coincidentally on Halloween) to stirr things up a bit one more time and call for a referendum on the Greek debt deal and restructure the defence ministry.  As his power over the parliament is schrinking, the confidence vote may turn into a desaster if he doesn't manage to shore up enough support. Meenwhile stock markets around the world take a hit, with the S&P down to $1230 and the FTSE down to 5410.

Market Talk: Risk-off day in all major asset classes

A sharp reaction from the financial markets came today after the participants expect further economic turmoil. US Stocks slump as the Goldman Sachs reported its second quarterly loss in almost 12 years and as IBM shows signs of weekness. Commodities drop, precious metals leading with Gold down 2.46%, and silver down 1.86%. Just a Manic Monday.

Smoke and mirrors in finance and investment

This blog is created to provide quality economic, financial and investment analysis. Whilst sometimes focusing on macroeconomics or microeconomics, the clear tendency is to stick to down-to-earth common sense.

In the investment world, as you may know, common sense is not so common.