The news cycle is moving almost as fast and furious as the equity markets. I have combined commentary from around the web that I feel best represents the issues we are all facing.

Needless to say, the CNBC story suggesting a ‘fat finger’ was the cause of the market chaos we witnessed last week is pure tripe…unless of course they are referring to a certain infamous finger located in the middle of the hand….

ZeroHedge: Summary Of The Biggest Bail Out Ever: Even Keynes Is Spinning In His Grave

Europe has now followed the Fed in its all in move to prevent the disintegration of the euro and of Europe. As we expected, the EU was leaking various rumors to gauge market interest, and as speculated earlier, the final cost ended up being just short of one trillion. Here are the key summaries:

• EU Crafts $962 billion show of force to halt crisis
• Full blown monetization: ECB will buy public and private bonds
• Fed reactivates swap lines with Bank of Canada, BOE, ECB, BOJ, and the SNB

In other words, total and unprecedented monetary lunacy, as every cental bank, under the orchestration of the Federal Reserve, will throw money at the problem until it goes away, which it won’t. As we have long expected, Bernanke is now willing to sacrifice the dollar at any cost to prevent the euro unwind. This is nothing than a very short-term fix, whose half life will be shorter still than all previous ones.

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Market-Ticker: EFA Euro Zone Notes

I’m listening real-time to the “conference” this evening… these are “first blush” comments…

They’re throwing the kitchen sink at this, but it’s not real money for the most part – it’s “guarantees.”  Exactly how they get the rest of the €600 billion is open to question.  Only €60 billion is “real money.”

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Market-Ticker: Bernanke: Liar (Again)

From The Fed:

In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities.

There’s been no “strain” in dollar funding markets.

There has been an extreme level of strain in Euro funding markets.

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Mark Fisher is a legend on Wall Street and in the commodity trading world. His take on the Selloff last week is spot on…

http://www.cnbc.com/id/37002752

Mark J. Lundeen from Lemetropolecafe writes: …If I’m correct that we will be revisiting the March 2009 lows, and then on to new Bear Market lows, we will see plenty of big up days ahead of us.  How’s that?  Well, unknown to most people, the really big up days occur during the Big Bear Markets.

The venerable Richard Russell wrote: “I believe that bear market has taken over again. I expect stocks to be locked into an extended downtrend for the rest of the year. For that reason, I expect a flood of bullish propaganda to pour out from the Administration, the Treasury, and the Fed. But it will be so much water over the dam, and after a while the voting public will realize that is just more of the government’s BS. The government’s rosy propaganda will become a joke.”

Tags: CNBC, equity markets, EU, euro, Fed, keynes, Richard Russell, Wall Street

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Time to check in with the Greek narrative. The hysteria has quieted down as new backroom deals to avert a meltdown are reported with some regularity.  However, the attempts to sweep Greece’s problems under the proverbial rug are occasionally sidetracked by a pack of rioters, or as is the case below, by the bond vigilantes. If rates continue to creep higher for Greece no amount of posturing will suffice to avert this funding crisis…

Greek borrowing costs imperil budget plans – WSJ

WSJ reports the high interest rates Greece must pay to borrow money are threatening the county’s ambitions to cut its deficit, raising again the specter it may need external aid. Many in Europe breathed a sigh of relief last week when Greece successfully sold €5 billion ($6.85 billion) in government bonds in an auction that saw investors clamoring for the debt. The sale was seen as a key test: The country needs to borrow about €54 billion this year. But debt buyers are demanding higher premiums than officials in Athens anticipated when they planned the 2010 budget, and when they proposed to European Union authorities in January a plan to trim last year’s €30 billion budget gap by €9 billion this year. Indeed, Greece’s filings with the EU rest on assumptions implying that this year and next the country will pay an average interest rate of about 4.7% on its new debt. That figure is consistent with the rates paid on existing Greek bonds, mostly issued in better times. But in last week’s auction, Greece had to pay 6.25% for a 10-year loan—about three percentage points above what Germany pays for similar debt. 

…While the bond vigilantes are alive and well in Greece they are apparently asleep everywhere else.  As the story below describes, credit liquidity has rebounded significantly from the veritable seize up in January and February, which in turn has facilitated an equity market recovery….

Credit market springs to life – WSJ

WSJ reports companies are aggressively borrowing in the debt markets once again—a sign of renewed confidence in the world economy following recent fears that struggling European countries could have difficulty financing their budget deficits. In the U.S., bond sales by companies such as Bank of America Corp. and GMAC Financial Services are on pace to conclude their busiest week since the beginning of the year. In Europe, borrowing by companies so far in March is already more than 60% of February’s totals. “It tells us that financial liquidity is very much on the rise,” said John Lonski, chief economist at Moody’s Investors Service. “No longer do corporations suffer from a dearth of liquidity. This puts them in a better position to take advantage of opportunities that arise.” So far in 2010, U.S. corporations have issued $195.2 billion of debt, excluding government-guaranteed bonds, according to data provider Dealogic, up from $166.8 billion during the same period in 2009.

…In fact, credit investors are so desperate for product it seems anything with a yield will do, as evidenced by the story below….

Buyers scramble for California bonds – LA Times

LA Times reports robust investor demand allowed California on Thursday to increase the size of a bond offering to $2.5 billion from $2 billion. The tax-free general-obligation bonds, which will fund voter-approved infrastructure projects, attracted orders totaling $1.38 billion from individual investors Tuesday and Wednesday. With just $620 million of the original $2-billion deal left, the state took in $3.3 billion in orders from institutional investors Thursday. To fill more of those orders, Treasurer Bill Lockyer raised the deal to $2.5 billion.

Tags: bond vigilantes, California, credit markets, EU, Greece, greek

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Turn off the TV and forget about the newspaper. If you want to understand the equity market gyrations of the last couple of weeks simply log on to an internet service like Briefing.com and watch for updates to the sovereign debt crisis.   Today’s trading is a perfect example of this new paradigm.  The Greek tragedy has turned into a farce as constant rumors have succeeded in whipping the markets into a frenzy.

Markets opened today’s trading on a firmer note because…

Greek bailout speculation lifts euro – Reuters

Reuters reports euro rose on Tuesday on speculation that European Union nations could bail out errant member Greece, while global stocks were flat and emerging market shares climbed. Expectations about a rescue for Greece followed news that European Central Bank President Jean-Claude Trichet was leaving a meeting of central bankers in Sydney early to attend a European Union leaders’ summit. EU leaders will hold a special summit on the economy on Thursday in Brussels amid increasing worries that Greece and other so-called peripheral euro zone economies cannot handle their debts and deficits. Spreads between German 10-year bonds and Portuguese and Spanish equivalents tightened. The spread with Greek debt was steady, but wide at 365 basis points.

…Then things went into high gear when this story hit the wire:

Germany Preparing Aid Package To Greece, FTD Says — Bloomberg

…The above news hit at 11:48, but wait, at 12:41 the following news splashed the wire and markets swooned:

German govt spokesman says reports about decision on aid for Greece are “unfounded” – Reuters

…But cooler heads prevailed and by 2:43 the market regained its footing as…

Germany considering loan guarantees for Greece, other troubled Euro partners, source says – WSJ

My purpose for the play by play of today’s equity action is to illustrate the lunacy of attempting to build an investment strategy based on short-term market swings.

After a couple of weeks of a strong US$ brought on by the Greek situation, I am inundated with comments from would-be experts that the rally in Gold is over.  These same experts, who are convinced they can spot the top in Gold prices, have been unable to spot the best bull market of the last decade. They have not owned Gold during its nearly 300% increase over the last 10 years, but somehow, through a haze of delusional arrogance, they are sure prices have peaked.  

When will Gold prices peak? Don’t know for sure. Trying to pick a price is a fool’s errand.  But I will tell you this: When Gold is, say, $3000/oz and I’m inundated with comments that prices are headed for $6000/oz I’ll be selling.

The following comments exemplify the actual long term trends we believe require scrutiny during the building of an investment strategy.  Yes, sovereign debt woes are a problem, but so are the debt woes of US states.  Running from the Euro into the US$ appears short-sighted and, to us, resembles the hapless effort of running from the deck into the galley of the Titanic. The only real safety (in a world where governments are playing the dangerous game of competitive devaluation and stimulus leapfrog) is the safety of Gold. Please hold onto the bar….    

In a nutshell, toxic assets have basically been swept under the rug in the hopes that we will outgrow the problem. Leverage ratios across every level of society are still reaching unprecedented levels as the public sector sacrifices the sanctity of its balance sheet in its quest to stabilize the dubious financial position of the household and banking sectors in many parts of the world.

Whatever bad assets have been resolved have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks, as we have witnessed very recently in places like Dubai, Mexico, and Greece, not to mention at the state and local government level in the United States. We simply have not seen a reduction in the percentage of properties with mortgages that are “under water”, hence the FDIC has identified 7% of banking sector assets ($850 billion) that are in “trouble”, so how can it possibly be that the financial system is anywhere close to some stable equilibrium? – David Rosenberg

Tags: EU, euro, FDIC, gold, Greece, investment strategy, sovereign debt, US$

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The race to the bottom is on! The only question remaining: Who will blink first?

I am referring to the race to default.  As you will see when reading the stories below, the USA and the EU have major cracks in the foundation.  Should Greece and/or Portugal default on debt the Euro would suffer accordingly. However, if and when California (or any number of other states in trouble) defaults, the US$ will suffer.  Witnessing this Greek tragedy of a race unfold (pun intended) may be interesting if not entertaining,  but the winner is in fact inconsequential.  

The big picture take away offers the most value for those looking to invest.  I can say with abundant clarity, both the USA and EU will need to create prodigious amounts of fiat currency to deal with the ongoing financial chaos.  This dramatic increase in the already bloated supply of fiat currencies will lead to an ever increasing demand for a constant and ancient store of value.  The store I refer to is of course that ‘barbarous relic’ known as Gold.  

Allow me a moment of clarification in regards to the word ‘default’.  Sources tell me Webster’s is changing the definition of the word default.  You know the word to mean: 

De-Fault (di-fawlt) -Noun 1. failure to meet financial obligations.

However, in light of the current political environment both in the USA and abroad, the new definition for the word default will be:

De-Fault (di-fawlt) -Noun 1. An instance of coming to the rescue, esp. financially: a government default of a large company.

Because of this change, the word ‘bailout’ will no longer be required and shall be stricken from the lexicon.

Greece and Portugal face ’slow death’ over debt crisis – Telegraph.co.uk

Greece and Portugal are likely to suffer a “slow death”, as higher debt costs cause the economy to “bleed” economic potential, Moody’s credit ratings agency has warned.  Moody’s Investors Service said unless the two countries reverse their large current account deficits, wealth generated would increasingly have to be used to pay off rising debt costs as investors demand more to hold Greek and Portuguese bonds. To compensate, the governments would have to keep raising taxes, which in turn could smother investment and drive out wealth creators, Moody’s said. “The risk of a ’sudden death’ is negligible, but the likelihood of a ’slow death’…is high,” the report said.  Moody’s warned that the window of time the countries have in which to act “will not be open indefinitely”, adding that Greece would have “significantly less time” than Portugal.

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California Creditors Dread IOUs With Aid Plea Failing – Bloomberg

Jan. 13 (Bloomberg) — California’s hopes are fading for federal help in closing a projected $19.9 billion deficit that has caused the lowest-rated state’s borrowing costs to rise 24 percent since September. “We recognize they have enormous problems,” David Axelrod, senior adviser to President Barack Obama, said in an interview. “But we can’t solve all of those problems from Washington.” Investors are growing more concerned that California, whose debt rating was cut today by Standard & Poor’s, will repeat last year’s fiscal crisis that forced it to use IOUs to pay bills. With Governor Arnold Schwarzenegger seeking $6.9 billion in federal assistance to narrow the deficit, the extra yield paid on the state’s 10-year bonds over AAA-rated municipal securities rose to 1.31 percentage points yesterday from 1.06 points on Sept. 11, according to Bloomberg fair market value index data.

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Rosenthal Capital Management runs the Fortune’s Favorite Family of Funds, including Fortune’s Favor I, Fortune’s Favor Precious Metals and Fortune’s Favor Offshore. For more information visitwww.rosenthalcapital.com

Tags: California, default, EU, euro, Greece, obama, US$, USA

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