Notes From Underground: Where’s the Solidarity?

Today’s release of the Chicago PMI brought good cheer to the Wall Street bulls as the equities have received some economic data to support the rally that has been fueled by cheap money but little economic substance. The most positive news was to be found in the employment component, which was the highest since November 2007. This data does not make a trend and we will need to see growth in the employment situation nationally before accepting one-off releases as indicative of any real pattern. CNBC On-Air Editor Rick Santelli gave the 7-year auction an A, and we have no argument with that. But where is the rally in the long end with all the shorts currently in the market? This lack of a rally bodes ill for the DEBT markets going forward.

In a quick note, we read where German Finance Minister Wolfgang Schäuble said it would be “misplaced solidarity” if Germany gave aid to fellow European, Greece. The stability pact must be adhered to so that confidence in the EURO is maintained. In very thin markets, the German/Greek 10-year spread widened out 8 basis points but is nowhere near the highs made last week. We continue to believe that the European Union debt problems will become a major story in 2010 as the financial world awakes to the structural problems of the European Union. The EURO will be a study in contrasts, which is prompting many pundits to proclaim a DOLLAR rally. We are not resigned to that yet!

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