Chancellor Angela Merkel has stated that she is against joint Euro Zone issued bonds. She has promised the German people that Germany will not be responsible for subsidizing the profligate ways of southern Europe. The European Union is a union in name only. Germany sought the union to benefit Germany and now that it is time to join together they want no part of paying that price. This matter will come to a head in 2011. Another prediction for 2011 is Angela Merkel’s resignation or ouster from government. Europe can’t be a little pregnant. It is a union or it is not. Joint Euro Zone bonds or default. That is the choice Europe and Germany face. Merkel will resign or will be ousted by the German people if she acquiesces.
Mervyn King from the Bank of England is alleged to have stated in a document supplied by wikileaks dated from March of 2008 that the current crisis is not a liquidity crisis but a solvency crisis. The difference being that one cannot supply enough liquidity to make this crisis go away. Have banks been able to sufficiently recapitalize in the last 2 years? If not, then we end up with an endless cycle of bailouts accompanied by zombie banks and even zombie governments. If he is correct and we are still in a de-leveraging cycle then debts need to be defaulted on and reorganization must occur.
This brings to mind the chart that we supplied the other day and shall do so again. Governments have tried to fill the hole that corporate and private borrowing had filled. Keynes said the market can remain irrational longer than you can remain solvent. If this is indeed a solvency crisis than the hole may be too big for government to fill. What does that mean for investors? Growth will remain muted and we will bounce along the bottom. Stick to quality. Bonds may also provide an opportunity at certain entry points as deflation remains the order of the day. The danger being that governments go too far and become reckless in their borrowing in an attempt to fill the hole.
Things remain slow as investors anxiously await Christmas and the end of the calendar. Market has been opening higher and closing on the lows of the session. This raises the caution flag. We think that the time is ripe for some type of downdraft as trading desk population thins and end of the year approaches. Hindenburg Omen appeared on Tuesday and was confirmed on Wednesday. Just the messenger folks. Stay on your toes.
Building on Michael Milken’s interview with Maria Bartiromo yesterday. The recent census bears out the consequences of a lack of education and trying o compete in our society. The census revealed the following statistic. The community with the lowest percentage of college graduates was Owsley County, Kentucky, where 4.6 percent of residents had a bachelor’s degree. Falls Church in Virginia had the highest at 69.5 percent. Owsley also had the lowest median household income, at $18,869, and Loudoun County, Virginia, had the highest at $112,021.
Answer: Santa’s reindeer are Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donder and Blitzen. Kevin says I forgot Rudolph.
Today’s Question: Donder and Blitzen are taken from the German phrase “ Donner und Blitzen”. What does the phrase mean?