Silence is Golden
Research for Online Investors

8/20/12

We have missed much of the rally of the past two weeks with our SwingTrader recommendations, as we are negative on the current economic situation.  Our subscribers to Buy, Sell, Hold and the Dividend Champion Long-Term Portfolio have benefited from the rally.  We evidently forgot…

Silence is Golden

There is a well-known trading strategy of predicting stock market rallies when the legislature is adjourned.  It’s a play off the old adage of nobody is safe when the legislature is in session.

For the last two weeks, the markets have been drifting higher on lack of bad news.  Bad news is a byproduct of politicians and bureaucrats.  Not to be left wanting for long, the Europeans are returning from “holiday” and making headlines.

Greece is struggling to trim $14 billion dollars from their budget to bring the deficit down.  They have to do this to get the next tranche of aid from the EFSF or ESM if Germany approves its activation.

Jean-Claude Junker is the Prime Minister of Luxembourg and chairs the Eurozone Finance Minister’s meetings.  Junker is headed to Greece on Wednesday.  He will then visit other eurozone players to advise them of Greece’s progress.  Bloomberg reports Greece will request a two-year extension on their adjustment program to bring down the Greek government deficit.

Antonis Samaras, Greek Prime Minister, is expected to visit Berlin and Paris on Friday and Saturday.  Jorge Asmussen is on the European Central Bank board.  Reuters reports this morning he believes a Greek exit from the euro would be “manageable.”

Asmussen prefers that Greece stay in the eurozone, as a Greek exit would be very expensive in terms of loss of growth and higher unemployment in Greece and eurozone countries including Germany.   Reuters quotes Asmussen, “Firstly, my clear preference is that Greece should remain in the currency union.  Secondly, it is in Greece’s hands to ensure that.  Thirdly, a Greek exit would be manageable.”

The Federal Reserve reports this morning that bank deposits increased 3.3% in the last two months.  Business lending only increased 0.7%.  This leaves a wad of money that has to find a home.  Since the Federal Reserve is out of bullets to buy long term debt in their “Operation Twist” program.  The Fed would like to see banks put some of that money to work buying Treasuries.

Banks have doubled U.S. government debt purchases in the last year.  The Federal Reserve reports bank Treasury (and other government agency debt) purchases in the last year at $136.4 billion dollars with total holdings of $1.84 trillion.  This helps the Fed keep short term interest rates down.

The Spanish IBEX stock index fell over 2.0% today.  This was its first down day in ten sessions and the worst decline in three weeks.  The IBEX has rallied 29% since July 23 (when Europeans started wrapping up business to go on holiday).

No matter which side of the “Rubik’s cube” you look at in the Middle East, the puzzle appears to be breaking apart.  The drumbeat of war seems to get louder in Israel every time we care to listen.

The P5+1 talks between the U.S. (and other countries) and Iran to negotiate a halt to nuclear weapons failed in June with an impasse.  Syria is unleashing their military on the civilian population and Egypt has moved tanks into the Sinai Peninsula, violating the Camp David accords between it and Israel.

The Mohammed Morsi (Muslim Brotherhood) government in Cairo is gaining control over the Egyptian Military.  Morsi is pressuring Washington for foreign aid and playing a game of ‘dare me’ in opening communication with Iran.  Iran has invited Morsi to attend the “Non-Aligned Nation’s” summit on August 30 in Tehran.

According to Debkafile, Morsi wants the U.S. to grant Egypt a half billion dollars in foreign aid and GUARANTEE a $4.6 billion loan from the International Monetary Fund.

My nephew graduated with an engineering degree in May.  He took a job with Schlumberger (SLB), starting two weeks ago.  Next weekend he flies to Abu Dhabi for a three month tour.

Me thinks he might see a little more excitement up close and personal in the next three months than he expected!

Israel is preparing their country for war.  The White House doesn’t want this to happen before the Nov. 6 presidential elections.  Israel has requested a firm commitment from President Obama to attack next spring and to upgrade Israel weapons in exchange for holding off an attack. The story was circulated last week that Iran’s nuclear program has progressed enough that Israel cannot stop it without American technology.

Higher yielding “bunker buster” bombs will be required to reach Iran’s buried enrichment laboratories.  Even American assistance may only serve to interrupt Iran’s program by a few years.  In the end, a grand showdown seems to be approaching.  If nuclear weapons held by countries that seek the annihilation of Israel are off limits, then regime change in Iran seems the only long term answer.

Again, Debkafile has the story.  We will learn more about this story in the next few weeks or see the results of an Israeli strike against Iran on the evening news.

I am a bit out of pocket today, as my 92 year old father is under the weather.  We should be back in stride tomorrow.

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