Bill Cara’s Blog for Sep 11, 2012

CTA Trading Desk Morning Report

[7:00am ET] Good morning.

Yesterday I referred to the Wall of Worry. As an example, the trend for equities, commodities and precious metals has been up but news reports today are affecting the market:

Germany’s high court rejected a last-minute plea Tuesday to postpone its ruling on a request to block the country’s approval of a permanent bailout fund for the European Union. And global markets are focusing intensely on the U.S. Federal Reserve, whose monetary policymaking body gathers Wednesday for a two-day meeting.

Definition of ‘Wall Of Worry’: A ‘Wall Of Worry’ refers to investor uncertainty in capital markets in the face of numerous negative factors, particularly macro economic, political or geopolitical stories that would normally be enough to affect crowd psychology in a bearish way.

I call it ‘Headline Risk’ and I believe the headlines, quite frequently, are purposefully crafted to bring about an intended result rather than to focus the audience on the facts. Yesterday morning I received seven headline articles — the same headline — sent by one news service that basically told me that the market was headed south because of soft economic data from China. It wasn’t until later in the day that the market went south, and Apple had a lot to do with that.

In my career I was dismayed to discover that the journalists who investigate, analyze and report the news are not the ones who write the headlines. Knowing that the public is either too lazy or short of time to read and consider the detail of a report, the headline writers hold the power of influence, which, bottom line, is the power of the media.

What are the biggest worries for investors today? What keeps you up at night?

• China
• Greece sovereign debt
• Spain sovereign debt
• Italy sovereign debt
• Fiscal Cliff
• The Euro
• European Economy
• US economy
• Global economy
• Food inflation
• Credit market
• US Treasury market
• US Presidential election
• Stock market technicals
• Consumer sentiment
• US healthcare
• QE
• Unemployment
• Iran
• Syria’s civil war
• Underwater mortgages
• Naked short-selling
• Peak oil
• Entitlements
• Student loans
• Global capex slowdown
• G-20 fiscal situation
• Too big to fail banks

My point is that it is always something. If you stick to reading the headlines and not watching the underlying price series data you will not understand the trends and cycles of the market.

Good morning, Geoff here.

Today’s date is one that will remain ingrained in many of our minds for the rest of our lives. Most of us in America remember exactly where we were when the planes hit the World Trade Center with many of us losing loved ones that day.

Our sincere condolences go out to those who lost friends and family on this day just over a decade ago.

As to the markets, they should be rather tame until tomorrow’s ruling from Germany’s High Court on the permanent bailout fund and the FOMC announcement on Thursday, although speculation is rampant. Will it be a confirmation of QE or not?

By the end of the week, we should find out if the US Dollar, stocks and gold are either forming continuation flags or getting ready to reverse trend leading to a risk-off trade.

As I wrote a number of days ago, there are signs that some form of stimulus has already begun and should the Fed announce a new bond buying program it could actually turn into a major “sell the news” event so be prepared for that possibility. Actually, it wouldn’t shock me at all if the following occurred; Big Ben announces stimulus, the market rallies hard for a few minutes as buy-stops are triggered and then reverses strongly to the downside and sell-stops are triggered leaving a very wide daily bar. Once the carnage is cleared, the market can then find its trend.

Of course all the speculation on what will be said is kind of silly. The trade that I am waiting for is weakness in PMs because it is a buy the dip environment imo. As you can see in the following chart, gold can drop to under $1700 and still be trading above the 10 dma. If you are looking for a good place to buy, $1700 wouldn’t be a bad place.



Watch the US Dollar. In the intermediate term it looks like a dollar down, stocks and commodities up environment but Thursday could drive the opposite in the short-term.

Have a great trading day!

Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.

Symbol Name Last Trade Change Related Info
^ATX ATX 2,095.96 6:44AM EDT Down 18.44 (0.87%) Components, Chart, More
^BFX BEL-20 2,411.00 Sep 10 Down 3.50 (0.14%) Components, Chart, More
^FCHI CAC 40 3,490.65 6:59AM EDT Down 15.40 (0.44%) Components, Chart, More
^GDAXI DAX 7,205.12 6:45AM EDT Down 8.58 (0.12%) Components, Chart, More
AEX.AS AEX General 333.90 6:45AM EDT Down 1.60 (0.48%) Components, Chart, More
^OSEAX OSE All Share 494.34 6:45AM EDT Down 1.73 (0.35%) Components, Chart, More
^OMXSPI Stockholm General 328.51 6:44AM EDT Down 1.10 (0.33%) Components, Chart, More
^SSMI Swiss Market 6,472.75 6:44AM EDT Down 35.12 (0.54%) Components, Chart, More
^FTSE FTSE 100 5,767.89 6:45AM EDT Down 25.31 (0.44%) Components, Chart, More
FPXAA.PR PX Index 947.50 6:59AM EDT Down 8.40 (0.88%) Chart, More
MICEXINDEXCF.ME MICEX Index 1,470.70 6:44AM EDT Down 5.34 (0.36%) Chart, More
GD.AT Athex Composite Share Price Index 719.39 6:44AM EDT Down 6.66 (0.92%) Chart, More

The team will check in during the day, reporting in the Discourse when there is a new entry.

Enjoy your day.

  1. 7:30 AM ET NFIB Small Business Optimism Index 7:45 AM ET... [#113161]
    By: davefairtex (5215 comments) Go to top ↑
    • 7:30 AM ET NFIB Small Business Optimism Index
    • 7:45 AM ET ICSC-Goldman Store Sales
    • 8:30 AM ET International Trade
    • 8:55 AM ET Redbook
    • 11:30 AM ET 4-Week Bill Auction
    • 1:00 PM ET 3-Yr Note Auction
  2. 2 in Accumulation Zone 1 in Buy alert 7 in Distribution... [#113162]
    By: davefairtex (5215 comments) Go to top ↑
    • 2 in Accumulation Zone
    • 1 in Buy alert
    • 7 in Distribution Zone
    • 5 in Sell alert

    Accumulation Zone (4%): Monthly 6, Weekly 3, Daily 4
    Distribution Zone (26%): Monthly 16, Weekly 33, Daily 31

  3. Here's a pick from Freeport Cara Conference 2010 via Chris... [#113165]
    By: westcoaster (1130 comments) Go to top ↑

    Here’s a pick from Freeport Cara Conference 2010 via Chris Start. Was $0.75 at the time. Looks serious, although a couple of years behind PMV.V, I like what they have been doing, and it would be good to get an update on this Bill. Mining friendly jurisdiction. Looks like it could be ready to break out. Good institutional ownership: several mutual funds and probably flow through shares.

  4. Interesting how the image and slant the corporate press... [#113168]
    By: dberryclan (687 comments) Go to top ↑

    Interesting how the image and slant the corporate press wants to put on the presidential candidates. Romney, shades of doubt, Obama shades of romance… :-) Feel the love?

  5. (US) Moody's issues update on US Sovereign ratings: Budget... [#113170]
    By: Vadym Graifer (4341 comments) Go to top ↑

    (US) Moody’s issues update on US Sovereign ratings: Budget negotiations are key to rating direction

    - Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government’s Aaa rating and negative outlook, says Moody’s Investors Service in the report “Update of the Outlook for the US Government Debt Rating. If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable.

    - Moody’s views the maintenance of the Aaa with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shock–such as would occur if the so-called “fiscal cliff” actually materialized–which could lead to instability. Moody’s would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.

    - The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit. The debt limit will likely be reached around the end of this year, and the government’s ability to meet interest and other expenses out of available resources would likely be exhausted within a few months after the limit is reached. Under these circumstances, the government’s rating would likely be placed under review after the debt limit is reached but several weeks before the exhaustion of the Treasury’s resources. Moody’s took a similar action during the summer of 2011.

    • ALOHA!! The rating outlook also assumes a relatively... [#113180]
      By: kaimu (3289 comments) Go to top ↑


      The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit.

      DEFINE “RELATIVELY ORDERLY”? Relative to what? I don’t know … Is $1.5TRIL per year orderly? Historically it looks like an orderly debt spiral! Relative to population growth debt growth in America is viral,especially adding in all the other unseen and unaccounted for “debt derivitives”. Wasn’t it Moodys that gave MBS AAA …


  6. Brokedown Palace. A moving piece by TH who witnessed what... [#113171]
    By: westcoaster (1130 comments) Go to top ↑

    Brokedown Palace. A moving piece by TH who witnessed what happened to the Trade Towers from his office window not far away.
    Worth taking a minute to read

  7. Good morning. 08:30 Trade Balance Jul... [#113172]
    By: Bull Hunter (3552 comments) Go to top ↑

    Good morning.

    08:30 Trade Balance Jul (-$42.0B)


    BMY – Bristol-Myers upgraded to Conviction Buy from Buy at Goldman ahead of potential catalysts that include the potential Eliquis launch, daclatasvir filing in Japan, and PD-1 data points. Price target increased to $40 from $38.

    BMY – Bristol-Myers reinstated with a Neutral at Credit Suisse. Target $36

    JNJ – Johnson & Johnson reinstated with a Neutral at Credit Suisse. Target $70

    WMT – target boosted at Credit Suisse. Shares of WMT now seen reaching $80. Company is cutting back on foreign capital spending. Neutral rating.


    Mining stocks:

    AU – AngloGold initiated with an Outperform at Credit Suisse.

    GFI – Gold Fields initiated with a Neutral at Credit Suisse.

    HMY – Harmony Gold initiated with an Underperform at Credit Suisse.


    “My next-door neighbor’s two dogs have created more shovel-ready jobs than this current administration.” – Gary Johnson (2012 Libertarian Presidential Candidate)

  8. ... [#113174]
    By: Grym (5469 comments) Go to top ↑
    • This example points up so many things that are the real... [#113175]
      By: nebish (297 comments) Go to top ↑

      This example points up so many things that are the real harbingers of change in America:

      1. Most people over 75 will live off of Social Security, Medicare/Medicaid and (in an ever increasing #) – food stamps.

      2. It is ironic that we spend so much time sweating our 401(k)’s and IRA’s when we all alredy know that whatever is in them now won’t nearly be enough given the inflation that is coming. Also, the amount you are allowed to set aside and still get tax-advantaged isn’t nearly enough to build real wealth ($17k for your 401(k) + $5k for your IRA – if you save all 22k for 10 years, you’ve got $220,000 x 8% compound annual return = about $400k. See how far $400k gets in you in 10 years…not far).

      3. Inerhitance – even a modest one – like retiring…will become urban legend. No wealth will be passed on except by the very, very wealthy who can set up the type of shelters necessary to preserve it in the first place.

      4. Most seniors will die in poverty. This will begin, in earnest, with the baby boom generation and that trend has started now. The press will tell you about it only after it becomes a full on crisis (unless it helps the dems stay in office, in which case it’ll be trumpeted advantageously).

      Systemic, structural change is needed…but won’t come any time soon and maybe not in time at all.

  9. The German court will rule on the EU bailout around 4:00 am... [#113176]
    By: Dr. Strangelove (2004 comments) Go to top ↑

    The German court will rule on the EU bailout around 4:00 am EST or 8:00 am GMT tomorrow, in case you were wondering. Get your popcorn ready.

  10. Classic reversal... [#113177]
    By: Vadym Graifer (4341 comments) Go to top ↑
  11. I only have one idea and picked up some Oct55 calls at... [#113178]
    By: ea32da32 (2362 comments) Go to top ↑

    I only have one idea and picked up some Oct55 calls at $2.69 – it’s too nice here in the Houston area to sit inside today on one of my rare days off LOL;-)

    I read RE; 9/11 remembered ‘West’ post – this is one of those visceral subjects and I think my working outside would do me some good today. I wish everyone the best and good trading/investing today;-)

    take care,

    COF – I’m looking at a little bull flag possable bounce off the 13ema. DYODD.

  12. As intimated yesterday, I have had an agenda on this blog... [#113179]
    By: MtnGntx (241 comments) Go to top ↑

    As intimated yesterday, I have had an agenda on this blog. That agenda is open to any and all interested in reading my past comments and the links I’ve provided. No secret there. I’ve been very consistent and honest. My record stands.

    To the charges of trolling, yes, I guess you might call it that. Guilty again.

    I do want to clarify a couple of things that may not be clear though. I am not a revolutionary. I do not think, or believe we could if we wanted, go backwards in time and rehash 100 years of US civil struggles. We certainly cannot and will not move to diminish or denigrate all of the wonderful advances we, as a nation, have made in the fields of equal rights and liberty for all humankind. Whether legitimate or not, I would never propose or suppose that we throw the baby out with the bathwater regarding the US corp govt. I don’t think all attorneys should have to disbar in order to participate in our society. I NEVER claimed as much, although I can see how that these things might be inferred by my comments and disclosures. I do believe that we have the job of molding this currently unwieldy beast to something more user friendly and respectful. This requires looking at old problems with new information and perspective. Heck, I am not even against a new world order where planetary rule and a world currency supplants the isolated nation state and the imperial fiat currencies. The only thing I really tirade against is the secrecy and confusion and elitism propagated by our current, mostly covert, superior, and self interested controllers. They are killing us as efficiently as possible, by design, both literally and figuratively.

    I do believe that certain things will come out in the near future that we, as a nation, will be forced to confront and process. And these issues will cause us pain and fear, as a nation, and result in much gnashing of teeth. Certainly nothing we can’t handle. We will handle it with humility and wisdom. But this is no different than any other nation on the planet at this time. We all have to grow up and confront our demons, as humans, together.

    My outlook on the future of humanity is exceedingly positive. We are on the cusp of a golden age and renaissance, not armageddon and doom. This is precisely because humanity is maturing by leaps and bounds, despite what the nightly news might convey. Breakthroughs in scientific thinking, like social thinking are also being born and reborn. It is an amazing and beautiful time to be on this planet. Thank you social media. Thank you Bill Cara.

    I know I have imposed upon both this community and Bill. I have twisted Bills arm long enough in that regard; I am pretty sure he is as tired of me as many of the rest of you I’ve made my points. I’ve fulfilled my promises, honored my charge, and completed my mission. Those interested can always reference and follow it.

    And, yes, it is time for me to stop haunting everyone here. I am glad of that… probably as happy as many of you are to here it!

    Love and blessings to all of you and happy, prosperous trading!


    • ... [#113182]
      By: arjay (29 comments) Go to top ↑
      • History is usually misrepresented by sloppy research and... [#113183]
        By: Dr. Strangelove (2004 comments) Go to top ↑

        History is usually misrepresented by sloppy research and misunderstanding of the mores of a bygone era. For example, Henry VIII cut off the heads of two of his six wives which led to 20th century historians’ scathing ridicule. But a hereditary monarchy of the 16th century required a male heir when most children died before adulthood. Medical knowledge was crude, to say the least. Henry wanted lots of male heirs to secure the throne while showing the Pope that divorce happens and he had a healthy sex drive. Evidence now shows that these two wives may have committed adultery. As queen, delivery of the king’s heir is rather important to the kingdom and its people. Lo, but they didn’t have DNA testing back then, me lord. Off with her head was the solution to an uncertain heir to the throne. Ironically, Henry’s daughter, Mary, ascended to the throne and became the most powerful Queen in English history when having a female ruler was distrusted because she was required to lead the troops into battle. Perceptions change but it takes time and science to save face and win battles.

        Dredging up the proposed 13th Amendment of the U.S. Constitution is interesting but should not be presented as ratified. Lighten up Mountain Goat. We all deserve a good bashing to learn every now and then ;)

        • Depending entirely on wiki for information is as dangerous... [#113188]
          By: MtnGntx (241 comments) Go to top ↑

          Depending entirely on wiki for information is as dangerous as not using science at all, sir.

          You will find that, as a matter of record, the 16th amendment was never ratified either.

          The fact that the 13th was even contemplated, ratified or not, is telling in itself. The fact that the 16th, while not ratified and characterized as such is similarly telling.

          Sorry Bill. A good bashing should be fairly administered and defended with equality.


          • MtnGntx - I didn't use wiki to tell my Henry VIII fable. I... [#113190]
            By: Dr. Strangelove (2004 comments) Go to top ↑

            MtnGntx -

            I didn’t use wiki to tell my Henry VIII fable. I guess I didn’t follow the thread all the way through on the Amendments and have lost the point as it relates in investing. No royals allowed citizenship was contemplated by our revolutionary founders but that idea was ditched. Okay. Wiki or no wiki, is that now question? To ratify or not ratify … Did the thread relate to investing? What’s the point!

      • To the American People: It is the opinion of the... [#113191]
        By: MtnGntx (241 comments) Go to top ↑

        To the American People:

        It is the opinion of the Government and many historians that the Titles of Nobility and Honor amendment proposed by Congress in May of 1810 was not ratified by a sufficient number of the several states to make it a part of the Constitution.

        However, there is a small group of researchers who have been working on solving the mystery since the late 1980′s and they have amassed an equally compelling body of evidence that strongly suggests that it was ratified by three-quarters of the states just prior to the end of 1812.

        In addition, they claim that the removal and destruction of critical Virginia legislative records politically sabotaged the amendment.

        For eight years now I have taken on the challenge of unraveling this mystery with the hope of proving conclusively that it was or was not ratified in accord with Article V of the United States Constitution.

        Working on the enormous foundation of evidence discovered and provided by Brian March, David Dodge, Tom Dunn, Bob Hardison, Suzanne and Alan Nevling, Dick Marple, and Richard Green with a lot of help from Helen Tansey, I set out to find the truth.

        Over the last several years I have added a vast amounts of new and material evidence in support of its ratification by a sufficient number of the several states to have been announced as adopted and made a part of the Constitution.

        My research has gone beyond that of my predecessors in that I claim one of the Virginia record entries was falsified and that it was President James Monroe who decided not to have it announced and set out to erase it from history.

        My claims are not flipped, but rather based on solid evidence i.e. the writing of John Quincy Adams in his personal diaries and official Government correspondence with various citizens.

        Over the course of this time I have made mistakes, but corrected them as new evidence was found. I invite you to evaluate my findings to date.

        My comment: Dangerous truths are buried deep and defended against heavily.

        • "My comment: Dangerous truths are buried deep and defended... [#113192]
          By: Dr. Strangelove (2004 comments) Go to top ↑

          “My comment: Dangerous truths are buried deep and defended against heavily.”

          Well, yeah. Guess Julius Caesar paid the price for that sentiment when he was stabbed 23 times to death on the Ides of March, 44 B.C., in the Roman Senate so the elite could avoid his push for landed gentry reforms. How about Henry VIII’s two beheaded wives? Lincoln? JFK? MLK? Mahatma and Indira Gandhi? Archduke Franz Ferdinand?! Admiral Yamamoto?

          How about these “dangerous truths” about the Fed:

          “As soon as something happens the politicians throw their hands up in the air and say it’s the Federal Reserve’s fault. It’s not the Fed’s fault. The politicians are the ones actually doing the spending. The Federal Reserve can’t control Congressional spending. There’s not much it can do to change the dynamics of the problem. The Fed can seize any company it thinks is too big to fail, so now we’re outside the scope of banking. They can seize Ford Motor Company if they want to. We are so far from what the Federal Reserve was supposed to be, it’s just insane. It wasn’t supposed to be in charge of the money supply. It wasn’t supposed to be in charge of inflation or bailing out companies that are too big to fail. It was never designed to do this, it was simply there as an insurance fund for banks, period. The Congress assumes they have no responsibility. Nobody takes responsibility. It’s just one big party down in D.C.”

          Politics haven’t changed much over the millenia, IMO. That’s the only point here.

        • Hopefully this 13th Amendment issue will be the last... [#113193]
          By: davefairtex (5215 comments) Go to top ↑

          Hopefully this 13th Amendment issue will be the last successful trolling by MtnGntx. Hopefully he lives up to his promise to “stop haunting everyone here.”

          As long as everyone notices he’s really not here for discussion – why discuss, when one already knows The Truth? He is simply Revealing the Truth that America Needs to Know, and he’s chosen us as the lucky recipients of this blessing. Global Warming Fraud, Alternative Energy, Faked Moon Landings, UFO Activity, Constitutional Fraud – there is so much Truth Out There that Needs Revealing.

          Ok. You’ve Revealed Truth here Very Successfully. Now your Work here is done; Mission Accomplished. Time to move on to another venue that hasn’t yet Heard the Truth.

    • MtnGntx - Thanks so much for your understanding. May you... [#113186]
      By: davefairtex (5215 comments) Go to top ↑

      MtnGntx -

      Thanks so much for your understanding. May you find a new place where your Agenda is exactly what your audience is looking for.

  13. I just returned from speaking at the MoneyShow in Shanghai... [#113184]
    By: Deron Wagner (77 comments) Go to top ↑

    I just returned from speaking at the MoneyShow in Shanghai. Was very interesting event and I came away with new thoughts and perspectives on the Chinese market. Took a few photos, for anyone interested…

    Looking forward to speaking with all of you via Skype at Bill’s conference later this month.


    • Deron, I too have taken that blazing fast train ride, as... [#113189]
      By: westcoaster (1130 comments) Go to top ↑

      I too have taken that blazing fast train ride, as you pick up speed, cars doing 60mph on the freeway look like they’re the proverbial standing still, everthing outside becomes just a blur. I don’t think it got the french any business, I think a loco was probably ripped down down and built their own from the template.
      Thanks too for all your posting. I took one of your trades and made a little money. Look fwd to conference discussion.

      • If not mistaken, I believe it was German [#113213]
        By: Deron Wagner (77 comments) Go to top ↑

        If not mistaken, I believe it was German engineered…at least I hope so considering the crazy speed of it.

        Have a good one,


  14. Sold my MUX earlier (high $4.2x) and bought more RGX (low... [#113185]
    By: 14them34me (295 comments) Go to top ↑

    Sold my MUX earlier (high $4.2x) and bought more RGX (low on the day). Could reload MUX again at lower price (around $4 or lower). RGX looks like a set up for higher prices to me.

  15. I noticed RL getting hit today. Appears Burberry same store... [#113187]
    By: Les (7233 comments) Go to top ↑

    I noticed RL getting hit today. Appears Burberry same store sales are flat or worse. Let’s see if Germany can put a smile on the 1% consumers tomorrow.


    Speaking of the 1% consumer brands, LVMH (Louis Vuitton) boss Bernanrd Arnault, following his announcement to seek Belgian citizenship to avoid the 75% income tax reportedly being implemented on high income earners like himself was lambasted by yesterday.

    The headline was a pun on Sarkozy’s insult to a member of the public who refused his handshake – “Casse toi pauvre con”. The nicest way I could translate yesterday’s headline would be “frig off rich prick”.

    Unsurprisingly the newspaper has subsequently been sued.

    Still, it’s a conversation we have to have. I just caught up with Jesse’s Cafe speaking of a particular trilogy being released for young readers – ‘The Hunger Games’ – a dystopic American twist to the time honored bread and circus for the masses.

    This is a conversation very much in the mood of the Monsieur Arnault and his ilk whom I would be willing to bet are profiting handsomely from the global largesse being administered in taxpayers name.

    The movie has recently been released. Orson Welles meets Big Brother. I recommend it.

  16. Marc Faber was recently interviewed by Eric King on... [#113194]
    By: Ilya (572 comments) Go to top ↑

    Marc Faber was recently interviewed by Eric King on He had some very poignant comments about the possibility of gold confiscation by Western Governments and pointed his middle finger, so to speak, at the Swiss authorities for giving up what had been hundreds of years of assured privacy in the financial sphere.

    Fred Sheehan who co-authored ‘Greenspans Bubbles’ with Bill Fleckenstein posted a piece (Sept. 7) on A must read in my opinion. In addition to ‘smiting the fuzzy heads of academia’ my words, he broaches the subject of capital controls and uses the term ‘sequester’ as a term to be used for ‘It’s still your money but you can’t move it or withdraw it all at once.’ Chilling!

    My last comment on the 13th ammendment bruhaha. Who cares? Like a million bucks, nobility ain’t what it used to be…P.G. Wodehouse had an astute observation. The decline of the British nobility was being offset by the rise of the American nobility with it’s epicenter in Hollywood, USA.

    The world is ever changing. One of my favorite quotes from my favorite 20th century philosopher, Eric Hoffer. “In a world of change, the learners shall inherit the earth, while the learned shall find themselves perfectly suited for a world that no longer exists.”

  17. DE) Preview: German Constitutional Court Preview: Ruling... [#113195]
    By: Vadym Graifer (4341 comments) Go to top ↑

    DE) Preview: German Constitutional Court Preview: Ruling expected Wed Sept 12th on or around 8:00 GMT (4:00 ET)

    - On Sept 12th, the German Constitutional court will issue its initial verdict regarding the constitutionality of the ESM and Fiscal compact. The debate focuses around the fact that the euro zone finance ministers would have full control over disbursements of the ESM to struggling countries regardless of the effect of the distributions on German budgets, undermining the sovereign rights of the German legislature. The German court has taken an unusually long time to rule on the preliminary injunction, giving the ruling extra weight. Any further decisions are unlikely to deviate from the initial ruling.
    - The fiscal compact is a treaty among EU members that will require national budgets to be in balance (as defined by a general budget deficit of <3% and structural deficit of <0.5-1.0%). The compact was signed by all members save the UK and the Czech Rep in March and will come into effect the month after it is ratified by the twelfth Eurozone member. Compliance will be placed on the European Court of Justice who will have the power to level fines to countries in breach of up to 0.1% of GDP.
    - The European Stability Mechanism (ESM) is a permanent organization which will provide financial aid to distressed euro zone countries. The ESM will have paid-in capital provided by Eurozone members at a fixed %. In order for the ESM to come into effect it must be ratified by countries representing 90% of that capital. So far about 55% of the capital contributors have ratified the ESM (only German and Italy haven’t ratified the treaty). Either German (27% contribution) or Italy (18%) could block the ESM if they fail to ratify it. If ratified the ESM will replace the temporary European Financial Stability Mechanism (EFSM) currently in effect.

    Here are the possible decision scenarios:
    - 1. The ESM and Fiscal compact are ruled constitutional as they exist (injunction is dismissed). Once the ESM and Fiscal pact are declared to be constitutional, Germany can ratify the treaty at any time making it very difficult to overturn the decision and declare the treaties unconstitutional in the future. -Market Impact: A decision without conditions would be unexpected and very positive for a unified Europe going forward. Many Germans (and other northern Europeans) have been outspoken against a unified Europe without conditions and this type of decision would do a lot to quell their voices. Risk on
    - 2. The ESM and Fiscal compact are ruled constitutional with conditions or requiring additional information These may include:
    - Restriction on ECB bond purchases
    - Limiting the liability of the ESM with a cap of maximum capital paid-in or some type of halt to the program if other members are unable to pay their share
    - Consultation of lawmakers or the Bundestag on ESM disbursements/issues
    - Changing details of the fiscal compact
    - Where the ESM treaty belongs in the Constitution
    - A referendum on the ESM and Fiscal compact to be voted on by the German population – Market Impact: This decision is the most likely one, a lot of the impact will hinge on the severity and/or number of the conditions
    - 3. The injunction is found to be valid. Germany will be banned from signing the treaties into effect until the German Court issues its final ruling early in 2013. This final verdict could also impose further conditions on the German government regarding other European countries. This scenario could also include the Court ordering a National referendum on the ESM and Fiscal compact as well. Germans are bitterly divided on this with about of them not wanting to supply financial assistance to other countries – Market Impact: This decision would be the most unexpected and would have the largest market impact. Massive risk off

    **Note: Twenty German Legal Experts unanimously think that German Top Court will not block the ESM and fiscal pact in poll

    • Thanks for the summary - and the timeline, especially the... [#113196]
      By: davefairtex (5215 comments) Go to top ↑

      Thanks for the summary – and the timeline, especially the GMT reference! I’ll make sure and tune in to watch..

    • Ditto. I do note that FXE is smack up against 200MA... [#113197]
      By: Les (7233 comments) Go to top ↑

      Ditto. I do note that FXE is smack up against 200MA resistance. No doubt its fate will be shortly resolved.

      I’m betting against Fed action at this point, but am ready for the mother of all risks on if he should follow in his illustrious predecessors footsteps as an unrepentant bubble blower.

      • My outcomes: 1) 30% unchanged statement from statements... [#113198]
        By: davefairtex (5215 comments) Go to top ↑

        My outcomes:

        1) 30% unchanged statement from statements made at Jackson Hole
        2) 50% more explicit statements for money printing “soon” (possibly in November?)
        3) 20% money printing starting now

        My gut tells me they’ll opt for more jawboning, to milk the most out of whatever action they finally do decide to take, but the statements will get ever more explicit and ever more certain.

        • yeh, so do we mark time until the next Fed... [#113199]
          By: Les (7233 comments) Go to top ↑

          yeh, so do we mark time until the next Fed meeting?

          Tim Cook unveils the Iphone 5 today apparently. With such a market weighting that this behemoth has, any rip to the upside is likely short-term positive. But, hasn’t priced already been baked into this cake?

          Whatever the case, as the MHFT points out, likely to get a little more volatility happening, these multiple events occurring simultaneously.


          Following the stunning treasure haul the UBS squealer has been awarded by the IRS, I am now prepared to denounce anyone who has any irregularities with said tax authority. Please forward any dirt you may have on your neighbour, your loved ones or yourselves. I’m prepared to cut a deal.

    • This kind of info and possible alternatives is one of the... [#113202]
      By: Grym (5469 comments) Go to top ↑

      This kind of info and possible alternatives is one of the main reasons I come here.

      As one who is far less concerned with the minute to minute or even day to day market, I look for those things which may cause a major and longer term change.

      Thanks Vad and others who added comments.

      I assume (just a guess) this will adversely affect the U.S. equity market ST, and draw foreign investors from U.S. Treasuries over a longer time frame. Anyone?