Wow, I come back from the holiday and the markets rejoice. On Friday, the day after Thanksgiving, the world was filled with doom and gloom but I come back and optimism reigns. Is it because I went shopping? Well that is part of it. Record sales on Black Friday is leading to hopes that the US consumer is coming back with a vengeance. Oh sure, there were discounts and sales don't necessarily lead to profits, but let's face it, the sale were darn good.
Of course the other reason for our new found buoyancy was the hope that somehow Europe would be saved. Forget last week's downgrade of Belgium and Portugal. If the IMF is going to bail out Italy, well those countries hardly matter. Do They? Forget the fact that the IMF is denying stories of a massive bailout, if the market wants to believe then they have a right to believe. This is the holiday season you know. Besides the bid honchos in Europe seem to be working on a shock and awe type of plan that may or may not include a type of Euro Bond and may or may not include Greece. The Wall Street Journal reports, A report Sunday from the Turin daily La Stampa said the lending agency could provide between EUR400 billion and EUR600 billion in financial assistance to Italy. But an IMF spokesperson said that no discussions were being held with Italy, which sent the euro lower versus the dollar. Nevertheless, equity markets are still expected to start on the front foot, helped by the launch of a new credit facility by the IMF. The new Precautionary and Liquidity Line could be used in several circumstances, including as insurance against future shocks and as a short-term liquidity window. A country can now borrow up to ten times its contributions to the IMF to help pay bills.
If that wasn't enough, a poll of market players are saying that they believe we will soon see QE 3D from our friends at the Federal Reserve. Bloomberg News reports, The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries. Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates.
For oil all of this brings the risk appetite back while geo-political risk is rising. Bailouts and QE 3D is bullish but so too is the increasing risk to supply The Arab League put sanctions on Syria. There is violence in Nigeria, rising tensions in Iran as well as a Shiite uprising in oil producing Eastern Province in Saudi Arabia. All of a sudden it has become a bit more dangerous to be short oil. The market has no choice but to add to the price to reflect these risks.
Still we have been through this European song and dance before. While you have to respect the up move, you have to know that as far as Europe goes more than likely whatever they propose, we will most likely be disappointed.
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