A slightly abbreviated edition of Morning Musings but a positive day is shaping up on the markets…as of 5:50 am Pacific, Gold is up $23 an ounce at $1,643 after finding support yesterday as expected at $1,600…Silver is 72 cents higher at $31.30…Copper, after getting hit hard yesterday, has climbed 14 cents to $3.20…Crude Oil has is up $1.15 a barrel to $87.22 while the U.S. Dollar Index is off slightly at 76.75…futures are pointing toward strong openings for the Dow and the TSX…
The outlook for Gold continues to be bullish as John’s 2.5-year weekly chart shows below…
The Venture Exchange today will try to regain some of the 45 points it has lost so far this week…it fell another 13 points yesterday to close at 1513 but encouragingly bounced off a low of 1500, the 20-day moving average (SMA)…this market could certainly rally higher, as John’s charts have pointed out, but this is no longer a bull market correction but a bear market that is both difficult and dangerous to trade…
No major U.S. economic data is due for release today…
U.S. corporate earnings have been decent – 60% of companies that have reported earnings so far have beaten expectations – and the U.S. economy hasn’t yet slid back into an official recession, but Europe continues to be the focus of attention for traders and investors…the problem with the euro zone debt crisis is that there’s no quick or easy solution…it’s like a bad movie that keeps playing over and over again…despite this weekend’s meetings, and a second round of meetings next week that will deliver “progress”, this crisis is likely to continue for many more months at least with a serious risk of the situation becoming even worse…this provides a negative backdrop for the markets and really hurts a speculative exchange like the CDNX…
The Financial Times reported last night that Greece, while it will get its next tranche of international aid, has an economy that is deteriorating so rapidly that a second bail-out plan agreed just three months ago is no longer adequate to keep Athens afloat…the report by the so-called “troika” of lenders to Greece – the European Commission, International Monetary Fund, and European Central Bank – put the blame for Greece’s deteriorating fiscal outlook on both the broader recession and failures by the Greek government to implement reforms…tables included in the report show that Greece is expected to miss 2011 deficit targets set in July by 1.4 to 2 billion euros, money that will have to be raised either through additional bail-out loans or further haircuts on private bondholders…in addition, it estimates Greek debt will balloon to 181% of gross domestic product next year, well above the 161% predicted in July…the troika report also acknowledged for the first time what has been insisted by Athens: the 50 billion euro privatization program, which was to contribute 28 billion euros towards Greece’s second 109 billion euro bail-out, cannot keep to its schedule and is already off course by at least three months…“There is no doubt that Greece is undergoing a recession that is deeper and longer than expected,” the report said…”The deterioration in the labour market, with employment falling much faster than expected, uncertainties of political and financial nature, and social unrest and industrial action have weighed on supply and on domestic demand”…of course Greece is not the only Euro country facing debt problems, so how this is all going to come out in the wash is anyone’s guess but the outcome is not likely to be pretty…
Standard & Poor’s will likely lower the credit standing of five European nations, including top-rated France, by one or two notches if the region slips into recession and government borrowings increase, the ratings agency stated in a report dated yesterday…the stress-test report assesses the capacity of the European Union and the IMF to support the euro zone under two possible scenarios – a double-dip recession and a recession with high interest rates…”Sovereign ratings on France, Spain, Italy, Ireland, and Portugal likely would be lowered by one or two notches under both scenarios,” S&P stated…a worst-case economic scenario would also likely prompt the recapitalization of numerous banks in Spain, Italy, and Portugal, S&P said, adding that current support mechanisms may not be sufficient if conditions deteriorate beyond expectations…”Looking ahead, we believe growth in the coming 18 months will be very weak, averaging between 1.0 percent and 1.5 percent for the euro zone next year,” S&P said under its base-case projections…
BMR – do you think something brewing in the CQX camp? Audet has been buying shares at the recent low price…any thoughts would be greatly appreciated!
Comment by Marc — October 21, 2011 @ 7:27 am
Greece should default and get out of the Eurozone. They will need their own currency. They are just not competitive when competing with Germany, France, etc in Euro denomination. There would be a political implication but that is better than Greece dragging whole Europe down.
Comment by Bruce — October 21, 2011 @ 9:37 am
I agree Bruce, the one size fits all currency is a disaster.
Comment by Hugh — October 21, 2011 @ 10:22 am
I agree Greece should be out of the Euro for its own sake….but this has problems of its own and im not sure its possible right now.
If Greece left, markets would quickly move on to who is next to default and leave. Portugal, Ireland, Italy and even Spain could be next. the first 3 have debt more than 100% of GDP. French banks have nearly $550Billion in Greek, Italian and Spanish debt alone, which is over 20% of French GDP.
Maybe in the future there could be a withdrawl of some of the weaker nations but wont be for a while. The only real option is a united nation of Europe, with everyone having the same fiscal rules and 1 central Bank.
If things are not sorted out soon then this could be an absolute global disaster which will dwarf the 1930’s
Comment by Mark — October 23, 2011 @ 4:41 pm
Hi Marc, from what I can see Audet bought a paltry 9,000 shares. Add a couple of zeros to that and it might mean something. CQX needs to raise money to do anything. What price can they realistically do a PP at? They totally blew their chance earlier this year to raise a whack of money without huge dilution.
Comment by Jon - BMR — October 23, 2011 @ 7:49 pm