What is Wrong?
esearch for Online Investors

by John Dalt

3/10/11

China reported a trade deficit of $7.3 billion for February this morning.  This was their largest trade deficit in seven years.  Asian markets were down across the board, with oil and copper taking it on the chin.  China is the world’s fastest growing economy.  Their economy is the largest consumer of copper and second largest consumer of crude oil.

Moody’s downgraded Spain’s sovereign debt one notch this morning, and warned there could be further cuts in their credit rating.  Earlier this week, Moody’s clipped Greek debt three notches.  Portugal sold one billion euro’s worth of two-year bonds yesterday, but had to pay an average yield of 5.99%  Portugal’s last auction of two-year notes commanded 4.086%, rates have gone up.  Five-year Portugal bonds are presently trading at 7.655% and ten-years are trading at 7.592%.

Usually, longer term bonds pay higher rates than shorter term.  The rate ‘inversion’ in Portugal’s debt is seen as fear of short term problems.  Irish debt is trading at 7.95% for two-year notes.  Greek two-year bonds are trading at 15%!  Eurozone leaders are meeting tomorrow to discuss the situation in Libya and N. Africa.  They are also going to discuss a ‘new’ restructuring plan for countries with credit problems.  High Frequency Economics wrote, “The bottom line is that you cannot make an overextended borrower—or any bankrupt entity---more creditworthy, or solvent, or better off by lending it more money.”

The European Banking Authority is undermining the integrity of the new round of ‘stress’ tests being applied to the 88 banks in member countries.  They have announced that individual eurozone countries can use their own definitions of Tier 1 capital to gauge their banks health.  Tier 1 capital is generally defined as common stock and disclosed reserves (cash).

The European Central Bank (ECB) issued a warning today that some governments commitment “to fully adhere to the letter and the spirit” of fiscal rule book “may be weakening.”  Their monthly report said, “…governments have yet to demonstrate convincingly the seriousness of their consolidation promises.”

Bloomberg reports that German Chancellor Angela Merkel told an audience last night that ‘German competitiveness is under assault from countries such as China, Brazil and India.’  Merkel believes that all eurozone countries have to play by the same rules or the weakest countries will drag Germany down.  She said, “We can’t give ourselves rules and then have some repeatedly flouting these rules.”

Chancellor Merkel is pushing a plan for consideration by Euro leaders at a meeting tomorrow.  The plan sets objectives rather than hard targets, but is sure to cause indigestion with some countries.  There is another meeting scheduled in two weeks when an agreement needs to be approved.  The present European Financial Stability Facility (EFSF) needs to be renewed or amended by the end of March.

The Euro was down against the dollar today.  We need to watch the news out of Europe for the next month.  Some of the weakest countries are fighting any hard targets and restrictions on their ability to continue spending money.  They have been shielded from the full market forces the bond vigilantes will demand if the eurozone cannot get their fiscal house in order.

SwingTrader subscribers closed a trade in crude oil this morning when oil took a dip.  There are press reports mid-day of rubber bullets being fired on a crowd in Saudi Arabia, oil has moved higher!  This is a dangerous market to swim in.  Keep your stops tight and don’t look back.

To the mailbag:
It is hard to read the new color scheme in MarketToday.  The black print on grey background appears foggy.---subscriber S.B.

I am laughing so hard…as a retired R.N., I understand----subscriber C.H.

John’s reply:  We will work on the appearance.  Some of this is different email accounts.  Our printing appears green in msn sometimes.  I haven’t figured that one out, but will work on better contrast for you.  I am glad you got a laugh out of my experiences.  Remember, this ‘procedure’ can save your life.  Don’t avoid it out of fear, and don’t use Fresca!

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.

MarketToday Archive

Back to Top