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Marvin Clark
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Marvin R. Clark is the Managing Principal of Monsoon Wealth Management (MWM). Monsoon offers affluent individuals and business owners’ wealth management, economic, and market advice throughout America. Based in Scottsdale, Arizona, Monsoon’s major task is employing a macroeconomic top-down... More
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  • SPY Gains Of The XXX Olympiad 0 comments
    Jul 27, 2012 5:47 AM | about stocks: SPY

    The long-term bearish market metronome produced by Europe's impotence and incompetence and Spain's acknowledged insolvency, rounding out the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) destiny, is neither surprising, or, heretofore, improbable. Spain is now headlining the limited engagement of southern European sovereign nations surrendering to the Über rich EU member, Germany.

    Yet, angst-filled equity investors in Europe, and here in the U.S., remain engaged in stock trading; Friday's close before the Greek election saw the European Indexes, FTSE 100, DAX, CAC 40, TR Europe, all higher. The major U.S. averages also rose.

    The bondholders of PIIGS unsecured debt obligations await their probable near-term default and surely inevitable write-downs. Regrettably, for this non-fictional, Shakespearean Mediterranean tragedy, even the wishful powers of the European Central Bankers (ECB), International Monetary Fund (IMF), and European Monetary Union (EMU), on a scale of Greek mythological proportions are insufficient.

    From CNBC, Wednesday night: Moody's Investors Service cut its rating on Spanish government debt by three notches on Wednesday from A-3 to Baa-3. Moody's rating puts it one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook.

    Egan-Jones also cut Spain's sovereign rating to "CCC+" from "B," pushing the country's debt deep into speculative territory. The rating cut, Egan-Jones's fifth for Spain this year, carries a "negative" outlook.

    Fitch Ratings cut Spain's rating by three notches on June 7 to BBB, one notch above Moody's, and put a negative outlook on the credit.

    All eyes will be on Greece on Sunday, waiting to learn if the New Democracy Party can overcome inroads made last month by the Coalition of the Radical Left - the Syriza Party, to form a coalition government. If the Syriza party should win enough seats for form a government, they have pledged to reject the negotiated austerity terms for the Greek bailout funding but will not exit the EU.

    France's Legislative Second Round election results will show if the Socialists have taken control of the government. Both countries' elections occur on the same day.

    Over the past two years, knowledgeable talking heads had informed us that Greek and Portugal insolvencies were complicated but manageable. However, if the banking crisis reached Spain, then, its economy was too large and any effort to contain this contagion would be overwhelmed. Well, that time has come. Spain officially asked for a €100 billion bailout. They are insolvent.

    Terms of the announced bailout package for Spain is structured loosely on the Ireland model. The double quote below, the first from Gluskin Sheff of David Rosenberg, and the second from the blog site Zerohedge commenting on Rosenberg's comment succinctly summarizes the folly of this and other rescues:

    Rosenberg - When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

    Zerohedge - As we have pointed out vociferously over the past few days, even though the assistance is being earmarked for the banks, the Spanish government assumes the responsibility and so this once 'low national debt' sovereign is following in Ireland's footsteps as its debt/GDP takes a 10pt jump to 89% (based on the government's data) and much higher in reality (when guarantees and contingencies are accounted for).

    Unfortunately, the EU's Long Term Refinancing Operations (LTRO), or European Financial Stability Facility (EFSF) or European Financial Stabilization Mechanism (EFSF), or its successor entity, the European Stability Mechanism (ESM), cannot create a Deus ex mechina that will successfully reverse more than a decade of relentless debt issuance.

    If the too big to contain (OTCQB:TBTC) equation about Spain was true two years ago, it's no less true, today. Taken all together, this vortex of the western financial system is a continuation of the crisis and fallout from 2008. Greece is in a depression. Europe will soon enter a depression. No one is talking about or thinking about growth which is the only remedy to cure excessive debt.

    *********************

    A fortnight ago, we stared into another abyss after receiving the latest monthly economic reports on real estate and non-farm payroll. This humbling report card of doom and gloom was sandwiched in-between periods of misplaced optimism about the outcome of Europe's banking crisis and wishful thinking of future global growth.

    On June 1, treasury rates made their final approach and landed into the history books reaching 1.45% on the 10-year note and 2.51% on the 30-year bond, exceeding the previously all-time lows reached in the fourth quarter of 2008. Gold also awoke from its $1,500-$1,600 dollar trading range to the upside that Friday.

    Helping precious metals and treasuries move were two previous months' downwardly revised already punk GDP data, fulfilling a realization that a new Fed punchbowl must be prepared for the economy by those wanting a soft landing. Meanwhile, Presidential hopeful, former Massachusetts governor Mitt Romney chances for defeating Mr. Obama and capturing the White house in November are brighter than ever.

    In recent testimony before congress, Fed Chairman Ben Bernanke downplayed any urgency in enacting Quantitative Easing III (QE III). One member of congress suggested during an exchange that the fed should remove the punchbowl from the table; you can be sure that it will remain. Since, without QE III, many politicians and many portfolio managers alike fear for their jobs; and a prone economy, too.

    On June 19th, the Federal Open Market Committee (FOMC) two-day meeting begins. Opinion is split as to whether or not an announcement regarding QE III will be made from this gathering. Throughout the rest of June economic data should experience an elevated sensitivity because the current atmosphere of presidential politics supercharges all things economic.

    *********************

    The U. S. stock market has given us over the past six weeks all the thrills of a summertime Six Flag amusement park ride. This serrated performance of risk on/risk off greed and fear rests upon the painful to watch unraveling of the EMU. Only in these perverted times does bad news make the stock market happy.

    Therefore, I think, the U.S. equity markets will climb this particular wall-of-worry and a summertime rally will emerge, albeit in a saw tooth pattern, if only because so few people believe that it can or should. This is how market rallies start. The stock market is as much a psychological and emotional occurrence as any endeavor imaginable.

    The S&P 500 Index 52 week range is 1,074.77 - 1,422.38. The close on June 13th was 1,314.88. Its 6-month high was 1419.04 and low was 1205.535, a ten handle move on the index before Labor Day is not unreasonable.

    On a technical basis, the S & P 500 has bounced off of the 1,280, 200 DMA, and is now approaching its 50 DMA, at the 1340 area. A summer rally can encompass a rotation in stock leadership as portfolios move away from exposure to Europe. If, and to what degree, the Supreme Court ruling against The Affordable Care Act (Obamacare) before the court adjourn this summer could force the market to make allocation adjustments in the health care sector is another material event.

    The market can ignore reality (bad news) for weeks, sometimes months, at a time. This summer's rally may take out the year's highs and may be the last opportunity for money managers to enhance long returns in 2012. One or both might be true.

    When the stars and stripes are waived in London at the Games of the XXX Olympiad this summer, and gold, silver, and bronze medals for individual effort and achievement are being collected by young men and women on behalf of our republic, we will lay down our various political blood sports, for a brief moment, anyway, and swell with national pride.

    Two of the best bull market rallies over the last 30 years occurred in the summer of 1984, during the Los Angeles hosted Olympics, and in 1996, during the Atlanta, GA hosted Olympics. As with this month's the Queen's Diamond Jubilee celebration, America will be standing with the UK from the opening ceremony, as allies, friends, and cousins. On this level, we share the 2012 Olympics.

    Is a summer rally certain because the nations around the planet are watching their fellow countrymen represent and excel in their sport of passion, as a payoff for years of dedication through their blood, sweat, and tears, while also inspiring the next generation to compete and succeed? No; past results do not guarantee future results.

    Show me a coherent rationality in a de-levering world of microscopic interest rates promoting austerity programs that allegedly spurs economic growth. How sane is the issuance of derivative contracts with a notional value several times over total global wealth.

    What is, but hope, an insolvent global banking system that extends and pretends the day of reckoning, and a financial world that believes somehow, someway, helicopter Ben will save the day.

    We all need to believe in something. This summer, I believe in an S&P 500 Olympics rally.

    Let the games begin.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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