Pee Wee Herman Market
Research for Online Investors

6/14/12

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 bond market.

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 money.

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.

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 Egypt.

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.

Quote:
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 everything.---Joseph Stalin

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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