Optimism Reigns
Research for Online Investors

01/17/12

Spain was able to borrow money much cheaper this morning than they did in December.  Spain sold 12-month and 18-month notes at 2.049% and 2.399% respectively.  These rates were almost half of their rates a month ago.  This comes after Spain’s credit rating was downgraded two notches on Friday.

Standard & Poor’s cut nine country’s credit ratings on Friday; then followed it up with a downgrade of the European Financial Stability Facility (EFSF) on Monday.  Many pundits felt this hurt the EFSF’s ability to borrow money to leverage the balance sheet of the bailout fund to assist Greece and other troubled economies.

The truth is the EFSF has not been successful selling their bonds.  This action drives another stake through the EFSF.  The EFSF is attempting to sell $1.9 billion dollars of six-month bonds today.

Eurozone members with a current AAA rating are Germany, Finland, Luxembourg and the Netherlands.

On Thursday, Spain will have an auction of four, seven and ten bonds.  They will try to place $4.5 billion to $5.7 billion dollars worth of these longer term bonds. These maturities are longer than the three year 1% loans banks are receiving from the European Central Bank (ECB).  This will be a test of the market since the ECB acted to increase liquidity in the eurozone’s banks.  Spain sold ten-year bonds on December 15 at a 5.545% yield.

The noose is tightening around Nicolas Sarkozy. France’s credit was downgraded Friday by S&P from AAA to AA+. He is behind in the polls in his bid for re-election.  The election takes place in April.

Francois Hollande, socialist challenger to Sarkozy, is ahead in the polls. Hollande called S&P’s credit downgrade “a downgrading not of a country…but of a president.” Sarkozy has not “officially” declared his candidacy for re-election but many consider this a formality. Hollande’s campaign slogan is “Change is Now.” Wow, how original…can we believe in it too? A nice compliment from a French socialist politician to copy Obama’s 2008 election slogan.

The market’s are up this morning.  I feel uneasy about the enthusiasm this morning.  Sunday night futures didn’t look this good.  U.S. markets were probably spared a rough day on Monday since we were closed for MLK day.

Asian and European markets faced the credit downgrades without too much damage.  It appears Americans are discounting the importance of the credit downgrades and maneuvering in the eurozone.  Maybe we are just worn out from the constant drumbeat of problems.

I am reminded of slowly boiling water, eventually the Frog is cooked…but it is too late. Let’s enjoy the rally, but maintain a cautious stance.

Mailbag:
Civil right legislation was first proposed by Dwight Eisenhower and obstructed by Lyndon Johnson in the Senate.  He then proposed the same as President and took credit for It.—subscriber R.H.

John’s reply:  You are correct.  Thank you.  I try very hard to research and have accurate information every day, but miss sometimes.

Was Martin Luther King really a Republican?—subscriber D.H.

John’s reply:  You question your trusty researcher?  Yes he was.  Good to hear from you.  He wanted equality…not a handout.  Today’s race-baiters that suppose to follow in his footsteps should listen to his speeches.  I did not like him at the time, as he represented a threat to the status quo.  I listened to his “I Have a Dream” speech on Fox Business, in its entirety, Monday morning and was impressed.  ALL Americans should have this dream.

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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