Equities have continued their rally with no negative news to derail last week's earlier trade. Fears of the "fiscal cliff" were off the front page as President Obama tours South East Asia on what might be called a mystery tour. Friday, US Equity averages are up 0.7%, following the lead of the European bourses which have worked higher this past week.
This is in spite of another lengthy EU meeting that had been called to pass an EU budget for the 2014 to 2020 years, and to finally give Greece their bailout funds. Originally, this tranche had been scheduled for June disbursement. By now it should be apparent only those truly loony think Greece will ever be able to repay the €30B or so expected to come their way. Besides, most of the current tranche will be used to pay off expiring loans. Why should the IMF, as an example, relinquish money to be used to pay back ECB loans?
Another eurozone meeting is scheduled for today (Monday), and we have, in a thin market, another anticipatory rally in the euro. Before getting too lathered up about the meeting consider the comments by Mark J Grant:
...everyone involved is now playing the grand old game of 'Work Around' where someone must pay and it is going to be anybody but them. "Not this little piggy," says the IMF and "not this little piggy" says the ECB and "not this little piggy" says the European Union....... In the classic tale there were three houses with the least stable being the one made of straw and let me tell you; Greece is the straw house. Now you may have thought that the IMF’s contribution was kind of like the Fed or the ECB and that they just created money from some pork barrel but this is not the case. As a matter of fact the United States, as a 16.75% contributor to the International Monetary Fund, is on the hook for $13.4 billion of the money lent to Greece, Ireland and Portugal. Soon, in my estimation, we will have two more pigs in the pen which will be Cyprus and Spain.
Volatility in a thin market following a holiday is nothing new. More important will be market action this week. There can easily be an agreement to kick the can down the road at the meeting in Europe today. Should that happen, the party will be brief.
The next case will be Spain. It is estimated their debt rollover requirement for next year exceeds €200B, far in excess of their requirements in 2012.
There are also problems with the ECB. It is estimated they hold €208.5B of debt from "high-risk" European countries. Granted, many of these bonds were bought at a discount, and the bluster of ECB President Draghi has calmed the bond market resulting in a nice profit. This profit-centre then becomes a source of disagreement at the summit meetings: who gets the profits?