The Simmering Soup in Europe

By Todd Harrison  NOV 15, 2011 9:30 AM

All that and the kitchen sink.

 


Turnaround Tuesday is upon us but someone evidently forgot to send Europe the memo. 

Consistent with our (16-month-old) Five-Step Guide to Contagion, the bag, previously possessed by Greece, Ireland, Portugal and Italy has found its way into the hands of Spain and France. Indeed, the cost of insuring French bonds is a record high while yields on Spanish debt rose.  All the while, the honeymoon in Italy is apparently over, much the way Fil Zucchi predicted last week.

I suppose you can't blame the markets for their concern. Angela Merkel recently said, "Irish problems are Slovak problems, Greek problems are Dutch problems and Spanish problems are our problem...our responsibility does not end at our borders." True dat Angie; welcome to the other side of globalization, population YOU.

It probably doesn't help that the German Chancellor's ruling party voted to allow euro states to quit the currency area, effectively endorsing a move that currently isn’t permitted. That's akin to your spouse walking into the kitchen one morning and saying, "I love you honey, I really do...but feel free to date whomever you want." 

Remember, because this is at the heart of the issue: credit of a different breed -- that of credibility -- is the issue at hand for markets at large.  The crisis in confidence has been percolating for years now and yes, it too is cumulative. 

Europe doesn't have a monopoly on psychological stress. I woke up this morning to news that police in riot gear stormed Zuccotti Park (the "sweep" was by most accounts peaceful), the NBA season is all but done (it's hard to be empathetic when multi-millionaires pinch pennies), political brinkmanship is good and think (into the election) and the Oracle of Omaha -- the world's most famous value investor who by his own words "doesn't understand tech" -- bought a ton of  IBM (IBM) at all-time highs.

The whole thing is nutty, I'll tell ya; and I won't even talk about MF Global (MFGLQ.PK) -- I’m still hearing horror stories -- or the general malaise that continues to, for lack of a better word, creep into our collective consciousness. Social mood and risk appetites shape financial markets, not the other way around.

S&P 1220 is the level of lore while BKX 40 continues to lend a hand on the shoulder of bears looking for short-side assurances. On the upside, the S&P 200-day -- along with the trendline connecting the three lower highs -- will come into play in and around 1270, if and when.


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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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