What moved the market today? From my understanding, it was driven by strong earnings from Navistar (NAV), Jefferies (JEF), perhaps others, as well as good economic data. U.S. housing starts for November came rebounded back 9.3% after declining 2.9% in October. The consensus number was for 0.636 million units, while the actual number came in at 0.685 million units. This shows the possibility of a strengthening housing market. This bit of economic data, along with the other good bits of data we have seen over the last week or so (jobless claims dropped significantly, Philly Fed Survey was good), helped the market make the move it made today.
The good news in Europe:
"An early boost to stocks came from an improvement in German business sentiment for December after two previous months of very little change. The eurozone's largest economy apparently is shielding itself from the sluggishness in surrounding Western European countries, according to Germany's Ifo Institute's business confidence index on Tuesday.
Markets were also greeted with a relatively successful €5.6 billion Spanish short-term debt auction, which alleviated concerns about sovereign debt funding challenges in the eurozone. Three-month borrowing costs fell to 1.735% at the auction, an improvement from 5.11% at a similar sale in November" (TheStreet.com).
So there you have what made the market move so tremendously today. Let us hope for more of this in the future, although I am not so optimistic. Why am I not optimistic? I can sum it up in 2 words.
Sovereign Debt.
It is completely absurd that these politicians and bankers are seeking to get the affected countries out of debt by issuing more debt. Let's take it down a notch, to something more tangible. Imagine you owe $1500 on a credit card. Are you going to pay it off with another credit card that has a $3000 limit? Well, sure, why not? You'll get out of your debt, for now. But when the credit card statement on credit card #2 comes due, you still owe that money. All you've done is deferred your payment. Now let's say you want to be free and clear so you take a nice loan out from the bank for $10,000. You've now paid off all your credit cards, and have $7,000 to finance your day to day activities. Eventually, however, you will have to pay back that $10,000 loan plus interest accrued on the loan. Point is, this doesn't get you anywhere. You would have been better off if you just tightened up your belt when the $1500 was due by living within your means, and paying off the loan plus any interest you may have owed on the $1500. Interest on $1500 is going to be much less than interest on $10K.
I could go on and on, but you get the point. Eventually, for this problem to ever be solved, these Nations need to enact tight austerity measures and slowly knock down their debts. If they don't, it may come to the point where the interest payments on issued bonds would become more than their cash flow, and payments would not be able to be made towards principle.
I know I sound like a broken record on this topic, but it just irks me so.
Check out this article I read today in the WSJ on how some banks (European mostly) are securing funds in this difficult economic environment. Article Here.
Here is an image from the article for you.
Interesting, isn't it? I don't have much to say about it, besides that it just shows how desperate these banks are for funds. No one wants to lend them money, and rightly so. Instead, they are turning to these complex measures to secure funding from the ECB.
It almost sounds '08 Financial Crisis-ey with the whole banks turning the properties into "asset backed securities". All we need now is for the banks to package together these securities into obscurely named credit derivatives like Delphinus-1 and then sell them to retirement aged investors....just kidding.
Anyway, I hope you learned something today. I did! Cheerio. Over and out.
EZ
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