Wednesday, October 26, 2011

Sell Euro stocks with exposure to the tabloids....

No no, I've got nothing about Rupert Murdoch. But without Silvio Burlusconi at Italy's helm, the page 6 reporters will have some serious writers block. The womanizing Italian Prime Minister is rumored by some Italian news sources to have agreed to step down from his post in the next few months. While his talk in Brussels of selling off Italian government owned assets to raise funds might have seemed amenable to some, the mere fact that Italy would openly state their intention to pathetically raise the retirement age by two years IN 15 YEARS, might just reinvigorate some skepticism. The German parliament, in a runaway vote, gave Merkel the power to negotiate an expansion of the EFSF (European Financial Stability Fund). But this German approval for Europe's most powerful leader states that the EFSF cannot be financed through the European Central bank. Also today, Mario Draghi, the incoming president of the ECB (starting November 1) put his support behind buying the debt of European nations. So what's the takeaway? It would seem to me that without the ECB to print money, the EFSF will not use buying sovereign debt as a tool to bailout Europe. 

Without funding from the ECB, the EFSF will either become obsolete, or have to find other means of funding. Enter the IMF. The IMF, as previously discussed, can receive funding from international bodies, including the USA. Then consider that the EFSF head Klaus Reglis (I'm learning more names by the day) is courting China to contribute to the fund (EFSF). China is under-represented in the IMF, and by contributing to the EFSF through the IMF, it might be able to gain influence. China would hold the most leverage in gaining such influence in dyer times, so I would not expect them to make any commitments anytime soon. But if things start to turn bad (ha... turn bad) in Europe, then China might just start to enter the equation a little bit more.

Today was November gold options expiration. Gold settled at 1723.5 having stayed positive all day while the stock market bounced around and went negative before closing higher. Keep your eye out for GDP numbers, coming out at 8:30 am tomorrow.

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