Wednesday, May 5, 2010

Eurozone Still Sinking.......

4 May 2010
There’s an old saying on Wall Street that stocks take the stairs up and the elevator down. Boy was that true today. You might even say that some people took an even faster way down – out the window. If you’re living in Greece, Spain or Portugal that probably sounds pretty good right about now. Today was a disastrous day on just about any level. Technically, the volume was very high and breadth was very negative at almost 6:1. It was also a 90% down day. Fundamentally, Europe could very well be broken.
On Sunday evening we wrote:
“Aside from the fact that this is almost certainly not a buying opportunity, let’s just hope that we don’t confront similar Euro problems down the road. I think that is 100% impossible as the problems here cannot be resolved with bailouts, but only by a restructuring of the European Monetary Union. Unfortunately, the Greek bailout now guarantees that it will take a much larger and far more damaging event to wake the EMU up to the true flaws that are at hand here….”
Nonetheless, investors piled into stocks on Monday as hopes of a Greek bailout looked promising. Unfortunately, the market has called the EMU’s buff and now the problems have potentially worsened. Greece is no longer the concern as the markets focus on Portugal and Spain. I find it hard to believe that the Germans can pass the Greek bailout now that they know the market could care less for it. It would be an effective waste of a huge amount of money. There truly is no happy ending to all of this. I think we are witnessing the beginning of the end of the EMU (how long that takes to unfold is beyond me). The currency is fatally flawed and has been exposed as such. Unfortunately, it is the people of Europe who will now suffer at the decisions of a few central bankers. I fear they will paper over the problems in a flawed attempt to maintain unity. The “Scott Norwood kick of the can” is quickly turning into a Pele like kick – extraordinarily hard….
Stocks closed lower by 2.4% today. I have maintained that the risks are extraordinarily high in this market and today does nothing but confirm such thinking.

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