Thursday, November 3, 2011

Mid-day Thoughts on November 3

Do not know where to begin.

I am amazed at what mess EU is in. Just when you think they have everything under control, they collapse in a matter of days. I think the biggest problem (which I am still not hearing many people talk about) is that it is inter-country dispute between parties in Greece which can derail the whole EU. Can you folks imagine what would happen in Italy if Berlusconi is gone? The most interesting thing is that PASOK was the party for bailout and steeper austerity, and opposition party was against. Now the opposition party leader is for austerity and bailout. This is so convoluted, to say the least. One can go absolutely insane following this saga.

I welcome Mario Draghi's decision to cut the rates. I know that he is taking a bit of a gamble, since EU inflation is at 3% or so. He did say that it will subside and will average about 2% in 2012. And the most important comment in his presser was the R word. Mr. Draghi said that EU is heading into a mild recession. Brave man!
Gold is now in heaven due to ECB rate cut.

In US the Chain Same-Store Sales for October were up 3.9%, which was a bit lower than 4.5% expected. We do need to monitor and see if usual October and weather-related weakness is to be blamed for the miss by more than half of the stores reporting. One of the reasons for the miss in October could be the fact that real personal income has fallen for the past 3 months. FOMC did not even mention this in the statement yesterday. Why? 

Speaking of FOMC, I wanted to express my view on yesterday's decision. I strongly think that the fact of a single dissenter on the dovish side tells us QE3 is near. There were 3 hawk dissenters at previous meeting - and 0 now. Bernanke all but hailed the notion at his presser, going out of his way to explain why he would buy more MBS. We get it sir, we know, all we have to do is look around us and see empty and abandoned homes.
Once again, gold has a bid underneath due to QE3 in the air.

And my last thought of the day is what I already said in the last few days (including last night) - be greedy when everyone is fearful. The European debacle is far from over, but it has reached a controlled state again. Last night Merkozy told Greek leaders to clean up or leave the EU. So bulls got the gift again. Market wants to go up.

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