Wee Herman Market
Research for Online Investors
Asian markets were down across the
board overnight. European markets were all down and futures for U.S.
markets this morning were lower. U.S. Jobless claims were higher than
expected. The market opened even then moved higher to up over 100 points
on the DJI. What happened? A
rumor that a “grand bargain” was being orchestrated with Germany to back eurozone banks. The story line is this will be announced over the weekend.
Greed has taken
over. The buying is like a stampede of people rushing to get into
a theatre to see the latest Harry Potter movie. What are they
going to think when the feature is Pee Wee Herman?
Would you follow this guy buying stocks?
Why in the world would sane
investors buy based on a television rumor? Everyone is buying into the idea that politicians want the stock market
to go higher. Here is the truth, THEY DON’T CARE. The stock market is a side show; the only market that matters to politicians is the
The ONLY metric that matters to the
pols, and bureaucrats in Brussels, is how much it costs for Spain, Italy and Germany to borrow money. Will there be
a bargain struck over the weekend to backstop deposits in all eurozone banks? We doubt it.
Here is why. Offering deposit insurance across the eurozone means the banks would be subject to
central authority and inspection. It means the sovereign governments
would lose control over their central banks. This would be akin to the
U.S. Federal Reserve being regulated by China!
Spain and Italy could not hide
government finances from other eurozone countries if they didn’t control their own banks. The European Commission would tell the Spanish banks to lighten up on their
purchases Spanish sovereign debt to reduce risk.
If countries were willing to give up
having their own banks, why aren’t Spain’s banks for sale to the highest bidder rather than the country seeking a
bailout to save them? Would Spain allow German banks to buy their
banks? No. One other point
needs to be made. Every time the EFSF grants a bailout to a country…or
banks as in Spain’s case, every country in the eurozone has to pledge their percentage of the
This means the Spanish bailout for
$130 billion dollars has to be raised from member countries. Italy will
have to contribute approximately 20% of the funds to help Spain. That
amounts to $26 billion dollars that Italy has to borrow at 5, 6, or even 7 percent to loan to Spain at three
percent or less!
Each bailout pushes every country,
including Germany, closer to the brink of insolvency.
The grand eurozone experiment is
racing towards the cliff of ruin. You can see it, everyone can, but
somehow, someone is buying stocks today because everyone else is. Like
my mom said, “If Johnny jumps off the cliff are you going to too?”
Our focus on Greek elections this
weekend has kept blinders on your editor. There is another election that
may have greater repercussions. It is in Egypt. We wrote about the first round of elections in May. This weekend voters go to the polls again to select a president. They have two candidates. Mohammed
Morsi, the Muslim Brotherhood candidate is running against the former Prime Minister under Mubarak, Ahmed
Shafiq had been declared ineligible
to run because he was a member of Mubarak’s government, but was cleared yesterday. An Egyptian Court effectively disbanded the parliament this morning saying the last
parliamentary elections were illegal when one-third of the seats were filled. This reduces the parliament to under the legal limit and new elections will have to
be held. This puts the military junta back in charge in
Many of the politicians removed from
the parliament were members of the Muslim Brotherhood. This week’s
events are seen as a setback for the fundamentalist group. The
Guardian covers the situation in Egypt in detail.
Their story also contains pertinent information on Bahrain and Syria.
It is enough that the people know there was an election. The people who
cast the votes decide nothing. The people who count the votes decide
Editor’s note: Elections this weekend in France, Greece and Egypt will change the landscape for
next week. The quote above may disgust you, but think how hard the U.S.
Attorney General is fighting to keep names on the voting rolls in the U.S. regardless of citizenship or
qualification to vote…if they are even alive.
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