Into the Bailout Buzz Saw ~ The Risk Averse Alert

Monday, July 23, 2012

Into the Bailout Buzz Saw

It looks like a fix might be in, at least to the effect of possibly greasing a rusting rumor mill over coming days. First clue was Spain's stock market holding up today better than the rest in Europe. Was this possibly the result of an anticipated bailout confirmed by way of Banco Santander finishing positive on the day (notwithstanding falling to a new low for the year, intra-day)?

"But investors are increasingly concerned that Europe's fourth-largest economy, like Greece, Ireland and Portugal before it, will have to ask international lenders for a full rescue.

"'What began as a Spanish banking bailout looks to be moving rather quickly towards a possible sovereign bailout,' said Jeremy Stretch, a currency strategist at CIBC." (What Happened in Europe That Spooked MarketsReuters, 7/23/2012)

Here's what Art Cashen and Bob Pisani had to say...

Oh yeah, that rumor mill is a rusting consensus of belief in a tired message! Ah ... tomorrow is another day. Maybe Mario Draghi can be trotted out yet again to talk up "political capital" invested in the EMU. Although Cashen rightly notes this capital's rapidly depreciating "street value," we can look forward to the IMF reporting Greece still has a pulse and more blood to drain.


By all indications the corrective wave forming since early June could continue developing. Both the S&P 500's relative strength (top panel) and momentum (bottom) remain in position for a positive response to increased clamoring for more bailout likely coming to your favorite, captive financial media outlet as a result of growing acknowledgement of the threat of the EMU's demise.

Not that this still "constructive" technical configuration is any guarantee the lug nuts will not fall off tomorrow. However, today's money suck to the trans-Atlantic's core bringing a record low yield to the 10-year U.S. Treasury Note and unwanted dollar strength suggests it might not yet be time for calamity. Indeed, this appears the consensus view, today's hedge-worthy trouble notwithstanding...


As I said at the start, it appears the fix is in. So, not only could the rumor mill receive a heaping smattering of grease in a chorus squealing for more bailout, but also from playing up the sentiment card showing vested interests more than willing to hang in there.

To the right was today's Yahoo! Finance CNBC poll. Longer-term we really get a sense of just how oblivious is the average investor to extraordinary risk that, "The Rage in Spain Calls Mainly for Dollar Pain." Apparently, there is considerable belief in the efficacy and likelihood of yet more bailout. So, as long as interest rates at the trans-Atlantic banking system's core do not blow out in a fitful scramble for capital, then there is reason to believe Tina and Bernice will remain hope among a solid majority anticipating the banking system's salvation in schemes already amply proven nothing but a swindle. In case you had not heard 60% of companies reporting their 2nd quarter earnings have fallen short of their consensus revenue estimates — yet more hyperinflationary breakdown confirmed.

Probably the most interesting takeaway from this poll is that, only 4% indicate an interest in buying commodities, this at a time when a record drought is hitting the nation's food supply. Jim Rogers probably is licking his chops!

Fast Money
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