货车进场入场:Italy/euro/gold

A better measure of investor sentiment towards Italian debt were today’s longer term auctions where 10 yr and near 10 yr debt were sold at yields of 6.98% and 6.7% respectively. The shorter term 3 yr auction yielded 5.62% vs 7.89% last month. To compare, nominal GDP in Italy may not grow more than 3%, thus these yields Italy is paying is unsustainable for any long period of time. Monti is speaking today, stating his case for the steps his gov’t has taken and saying there is “no justification” for the high yields of Italian debt relative to Germany. Really? The euro continues to weaken mostly vs the US$ and yen. Gold is selling off again and is now down 20% from its record high but the recent action in the US$ should be viewed as euro weakness rather than US$ strength as the US$ continues to languish vs healthier economies such as Canada and Australia with both still at about parity with the US$. This pullback in gold is nothing more than a correction in a long term bull market as the fundamental backdrop of currency debasement (especially with the recent explosion higher in the size of the ECB balance sheet) has never been greater. European banks parked 437b euros with the ECB overnight vs 452b yesterday. Much was made about the amount yesterday after all the borrowing banks did for 3 yr’s but its more yr end noise than anything. With this said, the money European banks borrowed for 3 yrs from the ECB will likely go more to refinancing their Q1 maturities than anything else. Italian business confidence fell to the lowest since Dec ’09 and Germany inflation in moderated in Dec.-----------------------------------------------------------------------------------------------
Stocks in ’12, pre printing/post printing       By Peter Boockvar - December 28th, 2011, 8:01AMThe easier part of Italy’s bond auctions this week took place earlier today as they sold a 2 yr zero coupon bond and a 6 month bill. Both though were priced at yields well below one’s sold last month. The 2 yr ytm came at 4.85% vs 7.81% in Nov and the 6 month bill yields 3.25% vs 6.5% one month ago. Whether the catalyst for the sharp drop in yields over the past 4 weeks was due to the ECB 3 yr lending facility remains to be seen but a good test of the appetite for Italian debt will be tomorrow’s bond sales that have maturities past 3 yrs (up to 10). Looking at 2012 with respect to Europe, it is inevitable to me that Europe will have a tough recession, not mild that many believe. Their banking system is literally shrinking and while foreign banks will fill some of the void, it won’t be enough over the next 6-12 months. European companies source 80% of their loans from banks and the credit dearth will be obvious, notwithstanding ECB longer term funding facilities. Slower economic growth will then lead to further stress on sovereigns and the ECB will then be left with the political choice of presiding over economic pain that will ultimately lead to debt restructurings (the healthy long term solution) by not sterilizing bond purchases or they will print and print and try to inflate their way out. With respect to stocks in 2012, it may simplistically come down to this, pre printing action and post printing action. Sell the former and buy the latter. I didn’t mention the Fed in this discussion but be sure, QE3 will come along when the travails of Europe hit the US economy. II: Bulls 50.5 v 48.4, highest since May, Bears 29.5 v 30.5