2011 September 30 | timiacono.com

Will It Be Pain or Gain in the Fourth Quarter?

After a big move higher on Monday following sharp declines earlier in the month, the broad U.S. equity market is stumbling into the close of the third quarter with a decent gain for the week but with the worst quarterly performance since 2008.

In this CNBC story, historical data for follow-on performance to periods like what we’ve just been through is provided and the prospects for stocks in the fourth quarter is debated.

Most of the time, stocks produce a gain in the quarter following  big declines, however, that outcome is by no means guaranteed. A similar table for gold would be interesting to see…

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I Think He Said “NEIN”

In today’s NEIN, NEIN, NEIN, and the death of EU Fiscal Union commentary for the U.K. Telegraph, Ambrose Evans-Pritchard casts a dim view on the hopes for a German-backed solution to Europe’s latest credit market woes, stating somewhat emphatically that the vote taken yesterday in Germany was widely misinterpreted.

Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a “Yes”.

This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events.

The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.

Repeat after me:

THERE WILL BE NO FISCAL UNION.
THERE WILL BE NO EUROBONDS.
THERE WILL BE NO DEBT POOL.
THERE WILL BE NO EU TREASURY.
THERE WILL BE NO FISCAL TRANSFERS IN PERPETUITY.
THERE WILL BE A STABILITY UNION – OR NO MONETARY UNION.

The latest tack to expand the €440 billion bailout fund to the €2 trillion level that analysts think will ultimately be necessary appears to be one of “leveraging” the committed funds in, what I understand to be, a fractional reserve banking sort of way. It should come as no surprise the Germans are vehemently opposed to this as noted in this story at Reuters.

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An “Inflation Spike” in Germany?

It would appear that the 1920s Weimar experience still haunts Germany as a 2.6 percent increase in consumer prices from a year ago, up from a 2.4 percent rate last month, would not likely be characterized as an “inflation spike” (or, generally speaking, cause for much concern or spilled ink by the financial media) in other countries.

This comes as the rest of the world increasingly expects the European Central Bank to come to the aid of the euro zone economy by lowering short-term interest rates from their current elevated level of 1.5 percent, more evidence that the world grows a bit more mad every day.

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Friday Morning Links

MUST READS
Cash-Short, U.S. Weighs Asset Sales – NY Times
China manufacturing shrinks in September – CNA
BofA to charge debit-card fee – Charlotte Observer
Europe Prepares Next Steps After Merkel Win – Bloomberg
German vote kicks the euro can down the road to Cannes – Telegraph
German minister: no appetite for euro fund leverage – Reuters
The eurozone crisis from a German point of view – BBC
NEIN, NEIN, NEIN, and the death of EU Fiscal Union – Telegraph
Goodbye to Worst Stock Market Quarter Since the Financial Crisis – CNBC
Don’t march against banks — walk away from them – MarketWatch
Wall Street Protesters Settle In Despite Weather And Police – HuffPost
Measuring Financial Productivity – aucontrarian
Obama as Demoralizer-in-Chief – Kudlow, RCM

MARKETS/INVESTING
Oil below $82 on strong dollar, growth concerns – AP
Gold rises but set for worst month since 2008 – Reuters
Investor Confidence in Obama Plummets: Poll – Bloomberg
Will Third-Quarter Pain = Fourth-Quarter Gain? – CNBC
China tech stocks dive on threat of US fraud probe – BBC
Silver may decline to $25-23 on industrial contraction – Commodity Online
Haywood forecasts US$38/oz near-term silver price, $20/oz long term – Mineweb
Physical silver shortage to occur on lower prices – Commodity Online
Is Copper Telling You China Is Much Worse Off Than You Think? – CNBC

ECONOMY/WORLD/HOUSING/BANKING
CEOs view of economy worsens in Q3: Roundtable – Reuters
Keynes, Hayek Preside at Washington Jobs Debate – Bloomberg
What are the Driving Forces for the Economy? – Comstock Funds
Booming German firms cast nervous eye to euro crisis – Reuters
Europe Inflation Unexpectedly Quickens – Bloomberg
Fitch, S&P downgrade New Zealand’s credit rating – AP
House prices fall, but prime London prices soar – Telegraph
Foreclosure bubble could last 5 more years – OC Register
The punishment of the American saver – My Budget 360
Plosser: Easing May Undermine Fed Credibility – BusinessWeek
Bernanke leaves investors mulling QE3 odds – Reuters
Imagining a World Without Banks – HuffPost

 
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