Weekly Recap & Outlook – 02.10.12

Tower Private Advisors

Below

  • S&P 500 and Emerging Markets indexes buck stock selloff trend; VIX jumps
  • Greece, Greece, Greece

Capital Markets Recap

Featured below is a zoomed-in version of our Secular Bear chart. The latter goes back to 1927; this zooms in on the last five years of it. Those horizontal lines are derived from some mathematical calculations from an antique Italian named Fibonacci (circa 1500). He’s probably a lot like Harry Markowitz, the founder of Modern Portfolio Theory, in that a lot has changed since each achieved brilliance. Still, the lines above were drawn from the 2007 peak to the 2009 low, and they’re affecting prices three years later.

Top Stories

Greece…Greece…Greece

Monday

  1. “Time Running Out for Greece as Leaders Haggle, Merkel says.”
  2. “Hedge Funds Eundersetimating EU’s Will to Force Greek Losses
  3. “Stocks Fall, Euro Weaknes Amid Greek Discussions; Copper Drops”

Tuesday

  1. “U.S. Stocks Gain as Euro Strengthens on Greece Rescue Optimism”
  2. Greek Haggling Drags on as Meeting to Seal Bailout Delayed”"

Wednesday

  1. Greece to Pledge 20% Cut in Minimum Wage, Draft Accord Shows”

Thursday

  1. “Stocks, Euro, Commodities Gain as Treasuries Fall on Greece Deal”

Friday

  1. “Stocks Decline with Commodities on Greece Bailout Concern; Treasuries Rise”
  2. Papademos Tells Greek Ministers to Back Bailout Demands or Quit Government”

…and this just popped up…

There is to be a vote on Sunday as to whether Greek politicians–one who cast a vote to cut the minimum wage by 20% is featured in the photo below–will accept the austerity measures that–well, Germany, is forcing on it. This is seen by many as a vote on whether Greece says in the Euro zone, the group of nations whose currency is the Euro. The vote will likely determine whether Greece gets its desparately needed next tranche of funds to stave off default.

It’s all very simple.

This is Greece on the Euro

This is Greece if it goes back on the Drachma

My guess is that something will get done Sunday to drag this thing out longer, but either way, it ain’t pretty. If Greece stays in the Euro zone it’s going to have to accept very harsh austerity measures–what’s been proposed wont’ be enough–harsh enough to push it into a very deep recession, something we call a depression. What Greece really needs to be able to do is to depreciate its currency so it can pay back its debt with a cheapened currency, but it can’t do that if it still uses the Euro, so it needs to be back on the Drachma, but if it defaults via a cheapened currency, it’s going to face very rapid inflation, something that will push it into a very deep recession, something we a depression. Screwed if you do; toast if you don’t. I hear there are going to openings for Greek politicians.

But, hey, relax; everyone else is. Here are today’s hottest searches on Google…Westminster Dog Show?

Not even the Greek debt holders are worried. Here a graph of the 5-year Greek credit default swap….well off its highs.

This Week

This was a quiet week on the economics front. It saw three significant releases. First, the Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. It reports on a whole host of related factors, but the headline figure is the number of Job Openings. When the economy’s humming along there are more job openings; when not, less. As you can see from the chart below, this week’s figure rebounded back to the trendline begun mid-2009 and takes us to the level seen just prior to the Lehman bankruptcy filing.

Initial Jobless Claims fell by 9,000 this week, while last week’s figure was revised upward by 6,000–’guess that means they fell by 15,000, until this week’s figure is revised up next week. Lastly, University of Michigan Consumer Confidence fell from 75 to 72.5, instead of the more modest 0.2 decline economists expected. It turns out that a trendline fitted to two of three confidence measures are dead flat over the last few years.

Next Week

Unlike this week, we get a bunch of releases next week.

Key indicators to watch

  • NFIB Small Business Optimism
  • Empire Manufacturing
  • Industrial Production
  • Capacity Utilization
  • Minutes of January Federal Open Markets Committee meeting
  • Producer Price Index
  • Initial Jobless Claims
  • Consumer Price Index
  • Leading Economic Indicators

Regional surveys

  • Empire State Manufacturing survey
  • Philadelphia Federal Reserve survey

Housing indicators

  • MBA Mortgage Applications
  • NAHB Housing Market Index
  • Housing Starts
  • Building Permits
  • Mortgage Delinquencies
  • Mortgage Foreclosures

Graig Stettner, CFA, CMT

Chief Investment Officer

Tower Private Advisors

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