Watching & Waiting Print
Written by Jeff Hybiak   
Monday, 24 October 2011 05:47

This weekend marked the 13th "emergency" summit in Europe in the last 22 months.  So far we learned that European leaders are serious about solving the crisis this time with a "bazooka" and for now plan to announce what that bazooka will be by Wednesday.  Two questions will be asked when it is finally announced -- 1) Will it actually work?  2) Did they wait too long?

As far as I can see, about the only thing they are good at in Europe is making promises to solve a problem and then holding summits to come up with plans to solve the problem.  What they aren't good at is either doing enough to fix the problem and/or actually following through.  We've seen it in Greece and Italy where they announce spending cuts to help reign in their ballooning deficits, yet can't seem to actually execute the cuts.

So while we watch and wait for the latest solution, the banking system in Europe continues to struggle.  ZeroHedge provided an updated chart of the liquidity stress going on in their banking system.  Note the quick drop when Germany and France announced this weekend's summit at the beginning of October & how quickly banks have had to resume borrowing from the ECB to meet their funding needs.

Meanwhile the market appears to have broken out of the trading range that started following the U.S. Debt Ceiling "solution" and subsequent downgrade of America.  (By the way, does anybody realize that the "Super Committee" has less than a month to come up with the actual spending cuts?)

The problem of course is that so many people use these "levels" as either their entry or exit points you often get a "false" breakout (or breakdown).  With the volume continuing to decline, our systems remain skeptical that the market is giving an "all-clear" signal.  Just like we saw following the U.S. debt ceiling solution, we could easily see the market sell-off regardless of what is announced on Wednesday.  Once the plan is announced, everyone will begin asking, 1) Will it actually work?  2) Did they wait too long?

We enter the week with EGA 23% invested in equities & EPA with no equity exposure.  If institutional participation picks up this week on a rally we could easily leg back into the market.  As it is with so much uncertainty out there, sitting on the sidelines is a pretty comfortable place to be.


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