The Bottom: S&P Decouples From Euro, It Is Different This Time

Includes: FXE, SPY
by: The Other Street

"Credit is a system whereby a person who cannot pay gets another person who cannot pay to guarantee that he can pay" - Charles Dickens.

On July 18, we were at S&P 1305 and I thought I would go long, on a trading basis. I was impressed by the decoupling of the euro dollar September futures from the S&P. The euro was going up while the S&P lagged. This was the beginning of the 1305-1345 rally.

This time the reverse is true. We are Thursday at around 12:45, and the euro futures has consistently come down from its high at 11:00. We are bps here, so the chart is more telling:

EuroDollar September Futures - Aug. 11 @ 12:45 ESTClick to enlarge
(Click to enlarge)

At the same time, the S&P 500 has maintained its high, trading between 1145 and actually breaking the range to 1157. These are intraday levels, at 13:10 it is even more obvious. The euro is pushing towards its lows at 1.42 the figure, while the S&P is up there, at 1163.

S&P 500 - 10 day - Aug. 11 @ 12:45Click to enlarge
(Click to enlarge)

What do I make out of this? I don't know, ask somebody smart. If I listen to my barber, the markets are now saying the financial crisis is on its way to be patched - I know, it's gory - and people are now listening to the true and reliable cheerleaders of this great country, Jamie Dimon and Donald Trump, both of whom are being cast as Treasury secretaries in the next musical. If Freddie Mercury was still alive, I would vote him press secretary. "We are the Champions."

You know what, I agree. Ever since we fled Europe to create this country, the old continent has been upset with us. How dare you? Without getting into domestic politics, this is probably why the Tea Party is popular. It reminds us of what we could do, back then, when we really got mad (at taxes). Ever since, they have tried to copy us, good and bad. That's why they morphed into the European Union, but they forgot a few things along the way. One was to have official lyrics for their anthem, which makes it tough to sing. Two, how to print money, cost effectively. Three, how to agree to disagree and then do something about it. One thing they seem to have remembered are the famous financial wizardries of John Blunt (South Sea Bubble), John Law (Mississippi Company), Charles Ponzi, and even the satirical teachings of Charles Dickens.

THEY INVENTED THE EFSF! Seventeen member countries would guarantee, on their own finances, billions of bonds that would be issued to the weakest of them. The problem is, seven of the guarantors were the recipients of the same money they could not repay in the first place, but that they would happily guarantee. Hence my quote on top. Enough, let's be serious here, we have a rally on our hands. I meant this article to be a blitzkrieg, but I went off cue. In the meantime, the euro dollar futures broke through 1.420, only to bounce back. We are at 1.4210, with the S&P at 1164. It seems to me we are putting in a bottom, and I am willing to wage 1210 before 1110. It does not seem that much of a range, but given the carnage, this leaves room for five to 10% moves on selected stocks. Please tell me which.