Notes From Underground: “Everybody’s Talking At Me I Can’t Hear A Word They’re Saying…”

It was a day of dueling flapjawing as the European elite was out talking about everything that needs to be done to save the EURO and Sarkozy promising that there would not be any European defaults. Again to paraphrase Jimmy Breslin: Sarkozy is a little man in search of a balcony. The time for public orations is past and the call to action is immediate and real. Global investors don’t want any more rhetoric. Next Friday is considered the day of reckoning but if the EUROCRATS have any sense all the needed policy will have been put in place by the December 9th meeting so that the markets will have absorbed the “shock and awe” and there will be no disappointment.

Mario Draghi was all over the map in his speech as he rambled on about inflation and then stumbled into the language of OUTPUT GAPS as he echoed his academic comrades, for he too is an ALUMNUS OF THE ECONOMIC DOCTORATE PROGRAM AT MIT AND ALSO WORKED AT GOLDMAN. Is there any leading central banker that has not graduated from MIT? Draghi was also hinting at the German position of fiscal responsibility as the first step toward increased ECB participation as a backstop to the DEBT CRISIS. Again, MANY WORDS WERE SPOKEN BUT LITTLE WAS SAID.


1. First the markets will get the data from Canada, which is released at 6:00 a.m. CST. This data is important for the window it places on the U.S. jobs picture. Last month, the Canadian data was very weak as 54,000 jobs were lost after a very robust September. The market is looking for a net gain of 18,000 jobs and the UNEMPLOYMENT RATE TO REMAIN AT 7.3%.
It is important to watch the manufacturing jobs component for a sense of the health of the Canadian auto sector, which is highly correlated with the U.S. Canadian jobs growth has been weak in the manufacturing area due to a strong LOONIE but services and natural resources have been very strong. If manufacturing shows any signs of growth it may bode well for a stronger U.S. number.
2. At 7:30 CST the U.S. jobs report is released and the market is now poised for a relatively strong number after Wednesday’s ADP. Consensus is for 125,000 private sector jobs, while state and local governments fall by another 20,000 jobs, which should show a net gain of 105,000. The UNEMPLOYMENT RATE IS EXPECTED TO HOLD AT 9.0% with a growth in average hourly earnings of 0.2%. IF THE NUMBER IS LESS THAN 50,000, the S&Ps and other risk-based assets should sell off but it will be more significant where the markets hold on any disappointing data.
The S&Ps are 8% higher on the week already so if the data is relatively weak and the markets were to hold and rally on weak data it will be a signal that something besides the U.S. growth story is propelling the stock market. Of course, the answer will lie in the WORLD’s CENTRAL BANKS and any real program from Europe. Weak data would be the best outcome so that this week’s rally can be tested for durability. As Wednesday’s concerted action showed, the policy makers of the world are ready to intervene to support the financial system and a weak U.S. number would allow the market to see if they are up to the task.
***The EUROPEAN BOND MARKETS were in rally mode today as the BTP (Italian BOND) futures were very strong as the unwinding of the PERIPHERIES versus the BUNDS continued. More importantly the 2/10 Italian curve continued its move back to a positively sloped curve as it is now 30 points positive and up 75 basis points for the week. The pressure off the Italian 2-year is the best sign for Italy as the near-term pressure is off for the moment. That is why Mr. Draghi should cut rates on the overnight lending rate while the market is showing some positive momentum. It is this large move in the Italian 2/10 curve that catches my eye and sends a message that something significant is being considered.
Even the French 10-years have staged a significant rally and are now below a 100 basis-point difference against the BUND. Does recent BUND weakness signify an unwinding of the BUND‘s haven status or the reality of a GERMAN CAPITULATION ON THE ECB ROLE OF LENDER OF LAST RESORT? A German guarantee on European debt, even coupled with a FISCAL COMPACT, would remove the luster from the BUNDS. This is the ultimate question presently overhanging the markets. Its resolution is the key to near-term trading.

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8 Responses to “Notes From Underground: “Everybody’s Talking At Me I Can’t Hear A Word They’re Saying…””

  1. rohrintl Says:

    Hi Yra-
    Excellent, pointed observations. Also caught the preview of this on CNBC w/Santelli… as rightfully aggressive on need for action as you should be; thanks for carrying the standard for the rest of us who understand how little the bureaucrats appreciate the need for action.

    Kinda reminds us of sitting at Sinclair and having Beryl Sprinkel coming out at 10:30 every day during the Carter admin and telling us why the US bond yields should not be so high, doesn’t it? It’d be humorous if it weren’t so tragic.

    Also, classic mis-type on the opening: I think you meant “…Sarkozy promising that there would NOT be any European defaults.” Right? Feel free to edit this out once you take a look at that. (As you know, that sorta stuff happens to me all the time.)

  2. arthur Says:

    Right now, Merkel warns solving the sovereign debt crisis in the eurozone will take years. FAZ notes that “integration has reached a point where the fundamental differences in mentality and culture amongst the members of the Union cannot be covered over by evocative references to history (…) and plenty of German money.” Point of No return?

  3. asherz Says:

    “A German guarantee on European debt,.” ” and for the rest of us who understand how little the bureaucrats appreciate the need for action.” both do nothing to address the basic problem of too much debt.It continues to kick the proverbial can when a dead end lies at the end of the road..
    Ultimately what needs to happen is restructuring anf reductions of debt. A painful process, but pain cannot be avoided. Banks will be nationalized to protect depositers, bank bondholders and shareholders will be wiped out, and a new start begun when the decks are cleared. A wrenching process but inevitable.

  4. yra Says:

    Asherz–nothing I disagree with–the question is and always has been is how big will the price be.If the BANKS go BELLY UP the cost may be more then the cost of buying some time to see if the weakest are pushed out and then going to work to use Geithner’s language–ringfence the rest.This is only about the bottom line and the for the european elite defending a dream based on a philosophical construct.I understand the strong desire to end war and conflict on the european land mass,but many egos were put to the front and the project rushed –the lack of a fiscal foundation and unified BOND mechanism was the EU’s slavery issue,without the human misery and bondage at the forefront.But the German desire for fiscal restraint in a time of economic malaise will create the human bondage and misery after the fact.To answer ARTHUR’s point—if Merkel were to all of a sudden propose a referendum in Germany that would be the endgame.But Asherz you are for the moment correct but the international community is opposed to the Germans calling the QUESTION ON BANK SOLVENCY.

  5. yra Says:

    Arthur—the point of no return will be Chancellor Merkel agreeing to a referendum in Germany over the changes to the EU “rules” or any other type of referendum .Remember that Sarkozy and Merkel castigated Papandreou for even considering the notion of a referendum in Greece

  6. raymack1999 Says:

    another song worth mentioning in the context of your notes today about the speeches coming out of Europe:

    “The idiot wind, blowing everytime you move your teeth”

    Robert Zimmerman

  7. arthur Says:


  8. eric Says:

    you guys got to forget folk. here is another apropo quote:

    “All I have in this world is my pistol and my promise, a fist full of dollars, and a list full of problems.”

    lil wayne, rapper, impresario, and imprisoned recently for doin what he believed in

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