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1/9/12

The market is hesitant this morning. Merkel and Sarkozy met in Berlin, and the world waits for the latest twist and turn. The market has been on a good run while the politicians have been on Christmas and New Year’s holiday…but good times can’t last forever.

The German and French leaders were at their old tricks again this morning.  After meeting, they held a joint press conference.  First on the agenda was Greece.  They warned Athens there would be no more money until private bondholders agreed to write down principal on outstanding debt.

Greece is in talks with banks and insurance companies that hold their debt to negotiate the “haircut” that is being demanded by the eurozone.  Greece needs more money.  Reuters reports that Greek Prime Minister Lucas Papademos said last week the country would ‘risk an uncontrolled default in late March’ unless new aid is forthcoming from the eurozone, IMF and ECB.

Merkel insists on going ahead with the financial transaction tax, calling on European finance ministers to report on progress in their countries in March.  Britain would not endorse the financial transaction tax in December.  Amending the European Union treaties requires unanimous approval.  Merkel wants the seventeen countries that use the euro to enact the tax if the European Union does not.

Sarkozy is facing re-election in April and May.  French unemployment is at a twelve year high and he is trailing Socialist Francois Hollande in opinion polls.  The Washington Post reports this morning that a French court ruled that SeaFrance should be liquidated putting 880 French employees out of work.  Sarkozy is scrambling.

Merkel wants to finish negotiations on the fiscal pact that would allow the European Commission to approve or reject national budgets.  She would like to sign the documents by March first.

Gosh, it is good to have them back at work!

Over the weekend China announced bank lending increased almost 14% in December.  Premier Wen Jiabao promised to increase lending to entrepreneurs on Sunday.  The Chinese Central Bank cut bank reserve requirements in December for the first time in three years, as the government tries to manage a “soft landing” for their export driven economy.

Slowing exports to Europe and a desire to spur growth in domestic consumption are the drivers behind the Chinese government loosening bank capital requirements.  The BBC reports Chinese currency in circulation and all deposits increased 13.6% in December over one-year ago.

The Chinese Yuan set a record high against the dollar of 6.3001 last Wednesday.  This makes each Yuan worth 15.873 cents in U.S. dollars.  The Peoples Bank of China intervened to lower the value of the Yuan last week.  This morning’s parity was set at 6.3236, making the Yuan worth 15.814 cents.  According to Market News International, the Chinese Central Bank sets the parity rate each day, and allows the Yuan to fluctuate 0.5% on either side of the “official” rate.

The market was surprised by the strong move to lower the value of the Yuan.  Traders should not have been surprised.  China will not allow the Yuan to appreciate enough to hurt exports.  This is the heart of the “currency manipulation” charges that have floated through the U.S. congress and Treasury for the last two years.

Hold on this week.  Earnings season starts tonight after market close with Alcoa (AA) reporting.  We still think the market would like to move higher…but the headline makers are back, volume is low, and the risk of a drop seems to be coming back into play.

Mailbag:
I hope something is done about rates charged by payday lenders and their ilk.  You are a true republican which I am no more.  I served under Nixon.  Way under, but I understand the town.--Subscriber G.O.

John’s reply:  Why do you trust the government to regulate a business you do not know?  If a business does not offer a service that consumer’s value, they will go out of business.  It really is as simple as that.  If payday lenders can't charge for their service, it will not be available.  Why don't you loan the deadbeats of society money and charge 4%...if you think Pay Day lenders are making too much money?

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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