Groundhog Day
Research for Online Investors

by John Dalt

11/01/11

The market is lower today thanks to the soap opera that is called the eurozone.  Greek Prime Minister Papandreou announced the country would hold a referendum vote on the rescue plan agreed to in Brussels last week.  He said he needed greater political support to implement the austerity plans called for by eurozone leaders.  It is as if Papandreou awoke from a slumber to utter this nonsense before he went back into his den for the winter.

The fallout was almost immediate.  Evidently, Papandreou did not talk to anyone, even his finance minister before making the announcement.  One cabinet member was sent to the hospital with stomach pains.  Jean-Claude Junker, chairman of the eurozone finance ministers, refused to rule out Greek default.   He said, “The Greek Prime Minister has taken this decision without talking it through with his European colleagues.”

Instead of consolidating support, Papandreou may have signed the warrant for his demise.  He had 153 votes in the 300 member parliament.  One member quit last night.  Other members called for a new government until elections can be held.

As a result of the referendum announcement, Papandreou faces a “no confidence” vote by the end of the week.  Merkel and Sarkozy conferenced by telephone and issued a statement that they were determined to implement the decisions adopted at the summit.

Some political leaders in Greece speculated Papandreou might resign by tonight and snap elections would be called.  This would end the call for a referendum.

The news out of Greece overshadowed the release of China’s PMI for October.  It came in at 50.4, the lowest reading since February 2009.  Last week the “Flash PMI” released by HSBC showed growth at a faster rate.  Today’s official PMI included larger manufacturers whereas the HSBC numbers are skewed to smaller firms.

The lower PMI numbers out of China knocked Australian stock prices down as that country’s economy is reliant on exports to China.  China has raised interest rates and increased bank reserve ratios in the last year to slow the economy.

Zhang Zhiwei, chief economist at Nomura Securities, said “Given the drop of the PMI is mostly driven by seasonality rather than economic weakness, we maintain our view that reserve ratio requirements and interest rates will remain unchanged for the rest of 2011.”

Details in the PMI show new export orders dropped to indicate a reading of 48.6 from 50.9 in September.  Total new orders fell to 50.5 from 51.3; this indicates domestic consumption is not slowing as fast as exports.

Input prices fell 10.4 points to 46.2  This was the first reading below 50.0 since April 2009.  This indicates some easing of inflation pressure.

We thought we had escaped the gyrations on headlines out of the eurozone after last week.  Sometimes it feels like “Ground Hog Day.”  Every day we wake up to see who is throwing wrenches in the market.  Today it was Papandreou’s turn.

Quote:
The euro is in danger ... If we don't deal with this danger, then the consequences for us in Europe are incalculable.-- German Chancellor Angela Merkel

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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