Wednesday, May 19, 2010

Impact of German Financial Moves

We still have many more questions than answers. Those questions are more on the short term and the answers for the real problems are non existent. In the long term this is noise and tries to address (very badly might I add) a symptom and does nothing to go after the cause.

In the short term do we get a forced short covering bounce and if so how long? In general the markets seem to be getting wiser to the fact that banning short selling smacks more of desperation and a reason to sell than something to get excited about. You saw that when the news hit today in the U.S. markets. They started selling off and the Euro started getting pummelled. Europe opens in less than an hour and it is very possible you see equity shorts being covered dragging up US futures and maybe the Euro. Why Germany would do this now is still a front and center question. It smacks of desperation but desperation of what? Is something else going on? I read a couple of pieces speculating it had to do with trying to get the bailout package passed in the German parliament which is receiving more resistance than anticipated. (Surprise Surprise)

CDS on Germany actually went down after the news in New York but it could have easily been forced unwinds of those contracts. The "short covering" rally before the market crashes.

One thing is certain. The market looks very very broken. Every bounce looks like a shorting opportunity. Today you had Spain try to come to market to sell a large amounts of bonds. They were less than successful only selling about 75% of what they wanted. They are supposed to sell 10 years on Thursday. Not a good sign leading into that auction. Greece has a debt auction this week as well.

Then you have this Financial Regulation Bill that will probably be passed in the U.S. in the next couple of days and primary jitters showing that the free spending individuals in Congress are getting voted out. Commodities are getting pummelled on China slowing and companies are starting to warn about earnings related to Europe.

The unwind seems to have started.

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