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Greece Is (Still) The Word (Just Not As Much So)

Daily State of the Markets
Wednesday Morning - February 15, 2012

Good Morning. As we look back on the seventh consecutive session of the current sideways-is-the-new-down market, it becomes clear that Greece is still the word. While I was secretly hoping that we could finally be done paying attention to absolutely everything that is uttered by politicians on the other side of the Atlantic, yesterday's session made it clear that this is simply not the case. Yep, Greece still matters whether we like it or not.

As I've opined recently, it appears that except during last-minute negotiations that appear to be at a fever pitch, the stock market has been able to "move on" from the European debt mess and spend at least a little time focusing on the stuff the used to matter the most such as the U.S. Economy, earnings, valuations, interest rates, etc. But, each and every time a deadline comes (and/or goes) traders return to the game they now know all too well. And when this happens, suddenly it's all about the euro again.

Did anybody else notice the mirror-like correlation between the stock market and the euro yesterday? That's right; up until the last-half hour's joyride to the upside (which was sponsored by, yep, you guessed it; the latest word out of Greece), the charts of the S&P 500 and the euro were once again moving like they were joined at the hip. But then once the sigh-of-relief programs started to hit, traders fell all over themselves to get back into stocks. After all if Antonis Samaras was going to give his word that he will stick to the deal if elected the new PM of Greece, everything's okay, right?

A frustrated colleague I spoke with yesterday wondered aloud why anybody still cared about the word out of Greece. As my friend put it, "They are going to default eventually; couldn't they just get it over with?" And that is point number one to this morning's meandering missive: Default risk has not been eliminated at this stage of the game. Yes, even after nearly two years, the market is still worrying about whether or not Greece might decide to just default on their debt.

The good news is that the default risk appears to be much less than it was a while back. If you listen carefully to the word out of Greece, it is clear that the politicians don't want to leave the Eurozone - how else are they going to be able to borrow money at rates less than 25%? And prior to the recent riots in the streets, polls showed that the citizens of Greece didn't want to go back to the drachma either. Thus, we agree with IMF head Christine Lagarde's view that what is occurring right now is really just a bunch of posturing and that this deal is going to get done.

This brings us to point number two this morning, which is that while Greece is indeed still the word, it is a lot less important to the market than it was during the bad old days of last summer/fall. Exhibit A in my argument is the movements in the market relative to the news flow now compared to then.

Think back to the uber-violent period from late-July through the middle of November. If a headline had hit the tape back then that the meeting to finalize the bailout deal had been cancelled (which was the first report yesterday, but this was later followed by news that the meeting had been postponed until Monday), the venerable DJIA would likely have plummeted several hundred points. But yesterday, that headline was only worth about fifty or sixty points. As such, I'll argue that we will eventually break free of this all-Greece-all-the-time market environment if and when this deal gets done.

But until the markets can be assured that neither Greece nor Germany is going to muck up the deal at the last minute, Greece will continue to be the word.

Turning to this morning... The big news overnight is the speech from a PBOC governor who stated that China continues to support the Eurozone and is willing to do more. Asian markets were up strong overnight and European bourses are up 1%.

On the Economic front... The Empire Manufacturing Index for February was reported at 19.53, which was well above the consensus expectations for a reading of 14.74.

We will also get reports on Industrial Production/Capacity Utilization and the NAHB Home index this morning.

Thought for the day... "You miss 100% of the shots you don't take" -- Wayne Gretsky

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: +0.20%
    • Shanghai: +0.93%
    • Hong Kong: +2.14%
    • Japan: +2.30%
    • France: +1.01%
    • Germany: +1.21%
    • Italy: +1.55%
    • Spain: +1.53%
    • London: -0.25%
  • Crude Oil Futures: +$0.93 to $101.68
  • Gold: +$15.40 to $1733.10
  • Dollar: higher against the euro, pound, and yen
  • 10-Year Bond Yield: Currently trading at 1.931%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +5.10
    • Dow Jones Industrial Average: +41
    • NASDAQ Composite: +13.36

Positions in stocks mentioned: None

For more of Mr. Moenning's thoughts and research, visit

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