Around 8 am, with gold near flat and silver down 50 cents (silver has been under-performing the last few days), I took my eye off for the market thinking that we were headed for a rather quiet day. then, in the background i heard "did silver just rally 50 cents?". I figured the question-asker had probably misread the board, but he hadn't. With silver trading flat and gold now up 13 dollars, it was the beginning of our first major buying day in a while. As I walked off the floor to my office I saw the headline that there was a coordinated global effort to help extend swap lines to European banks who have seen dollar liquidity dry up. In essence, the amount these struggling Euro banks would have to pay is now less to borrow dollars to help fund their operations. Naturally the markets reacted positively to such news (and continued to move higher, closing near the highs) as it helps to provide a lifeline to suffering banks. But why did it happen today?
Some rumors spread that perhaps there was a European bank that was on the brink of collapse. If such a collapse had really been imminent, shouldn't this temporary band-aid be viewed as a bad reminder of our situation? A few things to keep in mind before getting too excited.
1) This helps the banks. It doesn't help the Euro sovereign nations. They are of course connected, but countries' debt problems remain just the same.
2) Central Bankers approved this concept. Ben and the boys are probably a fair bit more well similarly aligned than say Maxine Waters (God help us all if she heads the Financial Serves Committee) and fellow congresspeople. Thus, this swift action, while encouraging, did not require legislative approval. Don't forget what happened the day America's congress convened to pass (and didn't) TARP the first time around (Dow -777).
3) As Dennis Gartman pointed out on CNBC's Fast Money, the Euro rally was not what it might have appeared. Euro/Dollar went higher, but the Euro was weaker against all other currencies.
The S&Ps rallied to nearly 1250, the level at which we would be flat on the year. I have posited before that a rally into the positive could cause a massive influx of buying by hedge funds who are down on the year looking to chase returns before redemption period comes out. It is a lot worse to say you lost money in an up year, than to say you lost money in a year in which the markets sold off. While it was overshadowed, all US data today was extremely encouraging. Still, I would like to see us hold above that level (1250 S&P) before I became convinced that this was a real bull market. If you believe like I do, that the swap arrangement was due to an impending bank collapse, then bare in mind just how quickly things can turn sour.
No comments:
Post a Comment