- The flawed structure of the eurozone is coming back to haunt global leaders. The markets want the European Central Bank (ECB) to print money, but the golden rule applies: “He who has the gold makes the rules.” In Europe, Germany “has the gold.” Germany has seen what money printing can do and thus, is vehemently opposed to cranking up the printing presses.
- Back in the United States, the super committee failed to reach a budget agreement.
- Global growth is being threatened by a vast amount of uncertainty. If Europe tips back into a recession, which appears likely, it becomes even harder to access the bond markets at sustainable rates of interest.
- From a technical perspective, as detailed in the video below, numerous concerns remain, including new bearish developments on the weekly chart of the S&P 500.
After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.
If the S&P 500 fails to hold between 1,191 and 1,209, a crack may appear in the door allowing stocks to revisit the October lows. A case can be made for support near 1,180 as well. If the S&P 500 can remain above 1,191, another push toward 1,240-1,280 cannot be ruled out. In either case, the odds remain in the bearish camp longer-term. Consequently, conservative/deflationary/bearish assets, such as bonds, the dollar, and shorts, are attractive looking out several weeks to several months.
If the ECB relents and decides to print money, all bearish bets are off. However, given Germany’s stance that appears unlikely in the short-term. Over the next few months ECB money-printing becomes more and more likely.
Other concerns remain:
- As we outlined on November 4, the ratio of gold to Treasuries has yet to confirm the rally off the October lows.
- The NASDAQ typically leads the S&P 500 during sustainable rallies. The NASDAQ has been a laggard in recent weeks (see article).
- Copper has also failed to confirm the recent run by the bulls.
- The European credit markets are showing signs of stress that exceed what we experienced in 2008.