Greece: One More Foot in the Grave.

And the hits keep coming for Greece. Today, Ratings agency Moody’s downgraded Greece’s sovereign credit rating from A2 to A3. They also placed it on review for further downgrades.
The Euro sank to 11 month lows breaking and then bouncing off an important support level. It made it as low as $1.3258 and in the last month has held this level. I will be watching for this level to break and hold to see a continuation of it’s down move and possibly a significant pullback in the US markets.

EUR/USD breifly broke support level after Moody's downgrade.

Eurostat, The European Union’s statistics agency, pushed up it’s estimates of Greece’s 2009 deficit to 13.6% of GDP from Greece’s earlier projection of 12.7%. Eurostat said they had concerns of Greece’s budget data.
Meanwhile in Athens, the streets are still filled with protesters and riots after police recently killed a 15 year old boy during the clashes. Window’s to shops are being broken and molotov cocktails being thrown as protestors express there outrage over the government proposed cuts of government jobs.
Now, I am all for a good protest. Having wages cut and welfare reform in an economy with 9% unemployment is definitely something to get the citizens roused. My question is, don’t they know that if these cuts aren’t made, there country will go even more bankrupt? So whatever wages they are fighting for will be moot, when the country no longer has money to pay them at all.
The truth is these measures should have been done a long time ago, before Greece got to the point of financial extinction. The proposed $45 billion bailout from the Eurozone members and the IMF is supposed to help them from going under. However, they are going to have to balance the budget at some point, so I’m not sure why they keep destroying their own city.
Even if they can get this $45 billion bailout, CreditSights (a independent fixed income research company), said the bailout may not be enough to save Greece from its debt problems.
Today’s market seemed to shrug off Greece’s woes and after a period of selling in the morning, reversed. As I write this, the SPY just turned positive on the day.

“The Canary in the Coal Mine.”

As in previous blogs, I have been keeping track of the progression of the Greece bailout. The US markets have been going up as the Euro is strong against the Dollar. Right now not even a spike in jobless claims can keep the US markets from going up, but the collapse of the Euro is still on the table. And since the Fed seems to be content keeping the rates in place until probably after September elections, the only catalyst seems to be the Greece bailout.
Where it stands now is the Euro-zone leaders have pledged $45 billion package of loans to Greece to keep it from the brink. However, this Tuesday at a meeting of the American Enterprise Institute, the fiscal outlook in Europe was identified as the leading downside risk to global economic recovery.
Nouriel Roubini referred to Greek Crisis as the “canary in the coal mine.” Saying that the fall of Greece could lead to the fall of Spain, Portugal and Ireland. And with this would be collapse of the Euro.
Desmond Lachman, a former IMF official and pictured above, said that in the near term the USD/EUR will likely move towards parity. He compared the Greece bailout to that of Bear Stearns by the Fed. Seven months after they bailed out Bear Stearns, the passed on bailing the Lehman Brothers rescue. Thus triggering the beginning of the global recession.
Can the Euro have that dramatic of an effect on us? That remains to be seen and can be a point of debate, but I certainly think it’s important to keep an eye on this as it recently has had a direct correlation with our markets.  A stronger dollar would expectedly take the wind out of the sails of the US markets.

EUR-USD grinding ever lower as dollar stregthens.

Beggars Can’t Be Choosers.

The IMF and the euro-zone agreed last month at the European Union summit to give bi-lateral loans to Athens. A report released by Market News International said that Greece was seeking to amend the plan to avoid having the IMF being involved.  The President of Greece citing he feared social and political unrest that may come about because of this.
I wonder if the Greeks are familiar with the phrase “Beggars can’t be choosers?” I mean your countries economy can not sustain itself. Are they really the ones that should be determining the terms on how they get bailed out?
However, the strengthening of the dollar against the Euro hasn’t seemed to have affected US markets. As the Dow flirts with 11,000 and the SPY continues to make new highs. However, I would have to think at some point the US market will be affected by a strengthening dollar. It seems the dollar will need to break 1.32670 before we;d expect to see a reaction from the market.

Dollar again strengthening against the EURO.

Markets have been drifting higher on a “great” March job numbers and hopes that we are on the path to the recovery. However, I look at the job numbers with a lot of skepticism. Being that the temporary census jobs accounted for nearly a third of March jobs. Another 600,000 jobs are to be added in the next couple months, but they end in July. Then what?

Greecing the Bull!

Today’s market action was a roller coast of good turned bad. The Dow pushed up to 10955.51 on positive news from jobless claims that were at an 18 -month low.  Around 2:00 though, the Dow abruptly sold off over 100 pts. when comments about plans for Greece’s bail out by the IMF seemed highly unlikely.

The sell off in the DOW after the IMF announcement of "tres, tres, mauvais!"

A little back story since the last Greek blog(Feb. 11th) in this soap opera of fellow EU nations. Germany and France have been leading the way to offer moral support, though not monetarily, to the Greeks. This is being done by EU nations to keep the EURO from totally imploding against the dollar. This week the Germans and French were to reveal their plan to help Greece out, but instead passed the buck to the International Monetary Fund.

Today the IMF came out and let the world know their position on bailing out the flailing Greeks. IMF President Jean-Claude Trichet said that getting money from the IMF for Greece’s debt worries instead of EU government’s would be “very, very, bad.” And these 3 words sent the EUR/USD crashing down to make new lows.

Commodities just tanked after this bringing the rest of the market with it, although financials and service sector held onto gains. Tomorrow I will be watching the EUR/USD closely to see if the EURO continues to weaken against the dollar. IF this happens, commodity stocks such AKS will be prime for more shorting. I would also look for a lot of profit taking in tomorrow’s market in these “uncertain” times, so be careful of the longs!

I am not bold enough to say that this is an end to the bull rally, but I think we will definitely see some correction through the next week. Remember the market is closed next Friday. So with the Greece bail out plan far from secure, it would be hard to imagine a lot of buying coming into the market before a three day weekend.

Look for a continuation of the selling in AKS if EURO weakens to the USD..

EU’s possible support of Greece leads to rallies in US markets

The Greeks are known for many things. The Parthenon, Pythagorean theorem, mischievous God’s and a debt crisis that is moving the US markets. In this week alone, the market has rallied on news that the EU would help Greece with its debt.

Wednesday, Feb. 9, at 11:45 am the SPY (chart below) reversed their downtrend on the day and bounced from their lows of 106.27 to make new highs at 108.15 ($1.88 or 1.74%.) This 45 minute move was based on unfounded rumors the EU would help out Greece.

Thursday, after an announcement from Brussels that no resolution was made, the SPY bounced from 106.62 to it’s high of the day of 108.25($1.63 or 1.5%.) Again, nothing has been decided although the EU is pledging support.

The dollar, which was gaining strength against the EUR/USD (chart below), initially bounced after the news, but then came back in as it was found to be “premature.” The EU is looking to give in-direct aid, but there won’t be any more details until sometime next week. As of this writing, the EURO is continuing to give up ground to the dollar.

The biggest gainers in US equities on the strengthening dollar have been basic materials. Although the overall sector has been the weakest over the last month down -9.2%. This week it is up 3.7% and more than any other sector. Today it was up 2.7%. (Bar Graph Below)

AK Steel Holding Corp (AKS) was up today 4.74%. It found resistance at it’s 50-day moving average. I will be monitoring it closely to see if it continues to rally as well as paying attention to the EUR/USD.

Shaded areas represent the volatility to the upside in the market.

The dollar is clearly getting stronger against the EURO

Week performance

Day Performance