Europe: The Titanic is SINKING

This is a special Outside the Box. I got this letter from my good friend Greg Weldon last night and got permission to pass it on to you. I think it illustrates the problems that the world is facing from the sovereign debt crisis that is building in Europe.

There are no good solutions here, only very difficult ones. In order to get financing, Greece must willingly put itself into a multi-year depression. And borrowing more money when it cannot afford to pay back what it has will not solve the problem. 61% of Greeks now favor leaving the euro. How has Greece responded? By banning short selling on its stock market for the next two months. That should make things better. Greeks are responding by rioting and going on strike. But you truly know when a country is dysfunctional when its AIR FORCE goes on strike. Yesterday Reuters reported that hundreds of Greek pilots called in sick in protest.
The response from government? The Minister of Defense said he was "profoundly disappointed." Now that had to make the pilots feel bad.

Money is flying from Greek banks, which makes sense, as how can a bankrupt Greek government guarantee Greek bank deposits? I know that Greek bankers may have a different view, but Greek depositors are voting with their feet. And Greg shows us it is not just Greece. It is fast becoming Portugal. And Spain is not far behind in my opinion.

I can well imagine there are private meetings among Greek government officials, banks and other leaders as to what must now be done. Those meetings I am sure can be tense. These things matter, as European banks hold a lot of Greek debt, as well as Portuguese and Spanish debt. European banks have not come close to dealing with their problems and are seriously over-leveraged. There is the potential for yet another banking and credit crisis stemming from European banks. Will world banks see their trust for each other (and especially European banks with large amounts of Club Med bonds) devolve as it did on August of 2008? It is something we must think about. It is possible, in my opinion. I sincerely hope it does not happen, but we must think about it. (Note, this is not something that will happen for awhile, but we should be aware of the problem.)

I want to thank Greg for letting me send this on to you. His website is www.weldononline.com. This letter is typical of his work – thorough and detailed and full of charts. He is the best slicer and dicer of data that I know.

The Greek Tragedy: S&P strikes southern Europe

The rating agency Standard & Poor's has gone on a rampage versus the larger part of the southtern periphery of the Europan Monetary Union, and the euro has been pushed a fresh twelve-month low as a result.

S&P knocked Spain's credit rating down by one notch to AA from AA+ on Wednesday and stated its outlook was negative on the Iberian nation due to its budget deficit. The Euro-Zone's common currency immediately felt the impact, falling to trade at 1.3114 versus the dollar, its lowest mark since April 2009.

The euro was able to pull back to over 1.3200 against the Greenback after the US Federal Reserve revived the market's appetite for risk with a positive forecast for the US economy.

This hit on Spain came just one day after the S&P slashed Greece's rating by three points to the status of junk as well as cut Portugal's rating by two levels.

As far as Greece's ongoing problems, International Monetary Fund chief Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet met with German Chancellor Angela Merkel in Berlin on Wednesday.

While no specific timetable or payment details were announced, the three leaders assured that negotiations on how and when to implement the €45 billion euro loan package for Greece were under way and should be brought to a close in a speedy manner. Afterward, Strauss-Kahn told the press that "the future the Europe is at stake", underscoring the importance of the moment.

Merkel added that negotiations with Greeece need to be accelerated and that she expects talks to conclude in a few days. CNBC reported that the German parliament could sign off on the deal by the end of next week.

German Finance Minister Wolfgang Schaeuble was quoted by a German newspaper before the meeting saying that Greece would "not be let down" in one of the clearest signs of support from Berlin in recent weeks that Berlin would indeed make good on its prior promises to help out the Mediterranean nation.

The clock is ticking away with a critical May 19 deadline approaching. Athens will then have to come up with €10 billion euros in order to meet its commitments or else.

European stocks fall lower amid continuing Greece woes

Continuing uncertainty surrounding the Greek crisis has investors nervous today, taking European shares lower. All major Euro indices are down with the French CAC 40 off the most, posting a loss of 1.79%. The FTSE 100 and DAX follow right behind at 1.30% and 1.01% less on the day.

European indices posted gains yesterday with mining and industrial leading the charge. However renewed concerns over the timing of the joint EU/IMF aid package as well as risks of contagion to other weak Eurozone members has left market sentiment shaky at best.

EUR/USD drops below 1.3345 to 1.3310 session low

Euro is suffering on uncertainty about the outcome of Greece's debt issue and , and after failure at 1.3410 high on Asian session, the pair extended its pullback below 1.3345 support to reach fresh session lows at 1.3315 so far.

On the downside, initial support level lies at 1.3290 (Apr 26 low) and below here, 1.3255/65 (intra-day support) and 1.3230 (intra-day support). On the upside, resistance levels lie at 1.3400/10 (Apr 26/session high), and then 1.3445 (Apr 21 high) and 1.3500 (Apr 9 high/intra-day resistance).

According to Stoyan Mihaylov, technical analyst at Deltastock.com, the pair remains in consolidation above 1.3201, with intra-day bias pointing lower: "Still in the consolidation pattern above 1.3201 and the pair already tested 1.3421 minor resistance.The intraday outlook is negative for 1.3292, where a reversal for one more upward test in the 1.3450 are can be expected. The overall bias on the 4 h. chart remains bearish. "

Germany's sputtering recovery

• Standstill. When the GDP numbers are published in mid-May, it should become apparent that the German economy stagnated in the last six months. Following the zero growth in the fourth quarter, real GDP should even have contracted slightly at the beginning of this year. In the process, the risks are still skewed to the downside (pages 4-7).

• Causes. The main drag on growth was the weather-related slump in construction output. But private consumption and net exports also played a role. Had it not been for the positive contribution from the inventory cycle, the GDP number would have been much deeper in the red.

• Question marks. Above all, the poor export numbers were a source of irritation. At the beginning of the year, real exports were probably down substantially qoq. Germany should in fact have profited structurally from the global economic recovery. Nor does the development of foreign trade gel with the upturn in German foreign industry sales.

• Spurt. That argues for a statistical reaction in spring. If the usual rapid recovery of construction output after a harsh winter is added to the equation (cf. chart), the current quarter should bring strong GDP growth of almost 1%. Thereafter, however, the pace of growth should normalize again and settle at 0.3%-0.4% qoq.

• Recovery. Evidence that – beyond the statistical distortions – the German and therefore also the EMU economy is still staging a (moderate) recovery is also provided by the improved monetary and fiscal environment. Our respective MCI & FCI indicators point clearly north (pages 8-9).

• Further topics:

  – Weekly Comment: Greece – third time lucky? (page 2).

  – Oil price continues to trend higher (page 10).

  – Data outlook: Consolidation of German business climate indicators; tax-related spurt in US home sales (page 12).

  – Market outlook: Investors not convinced by EU rescue plan (p. 17).

Before talking about those other countries and their respective currencies, what is your forecast for the euro?

We believe there is a wonderful buying opportunity for the euro. One reason is because the Euro-Zone counties are at least trying to reduce their costs, if you look at the US, whenever there is a problem they just spend more money. The Euro-Zone as a whole is running a deficit of about 6% of GDP which is about half of what the US is running. Sure, economic growth in the Euro-Zone may be lagging while governments are not spending money, but that may well strengthen the currency.

EUR/USD: Upside bias will remain while above 1.3480

Euro reversal from 1.3680/90 area, tested on Wednesday, extended on Asian session to test week lows at 1.3520 area although, according to Karen Jones, technical analyst at Commerzbank, the pair remains biased to the upside, in the near term.

The Euro maintains its upside bias, while 1.3480 support is intact, says Jones: "our view remains unchanged, while above 1.3480 a near term upside bias will remain. The market has recently broken above the 5 month down channel, and this currently offers additional support at 1.3425."

The upside target for the pair, lies around 1.3820/40 affirms Jones: "We would allow for gains short term to the 1.3820/40 peaks charted in February and March. There is a base pattern complete below the market between 1.3590-1.3265 and this targets 1.3915."

USD/CHF declines from 1.0640 resistance

The Dollar's advance against the Swiss Franc that take the pair from 1.0585, intra-day low, to test Fridat high at 1.0460 has been capped at this level, with the USD/CHF retreating to levels close to 1.0620, just below 200 hours moving average at 1.0630.

USD/CHF rises 0.17% so far today from opening price action at 1.0610 to the current 1.0630.

"The Daily Trend was within the Prior Day's Range and the Bulls gave up mildly towards the Close . The Hourly Trend has been in a Range Trading with no Clear Direction, 10570-30 are the Critical levels to watch to maintain the Bullish Outlook." Says Rajoo C, analyst at Precise Trader, "On the 5 min is along the Horizontal Channel and the Patterns are suggesting a Choppy Session until the break. The Opening Price Principles are Mixed so Cautious approach is needed until the break out of the Zone 1 level." Rajoo concludes.

What Happened to the Commercial Real Estate Collapse Everyone Expected?

Posted Apr 01, 2010 03:30pm EDT by Heesun Wee in Investing, Recession, Banking, Housing

Related: dia, spy, hd, xhb, man, tlt, spy

There's a growing suspicion among investors that the gulf between the soaring stock market and sideways action in housing can't go on much longer. Housing expert, notably Robert Shiller of Yale University, a Tech Ticker guest, is warning about the possibility of a double-dip in housing.

But another potential real-estate crisis is looming -- this time in the commercial sector. About half of all commercial mortgages will be underwater by the end of 2010, posing a "very serious problem" for the economy over the next three years, Elizabeth Warren, chairwoman of the TARP Congressional Oversight Panel, told CNBC this week.

So why hasn't commercial real estate collapsed yet?

In part the sector has been able to access the unsecured bond markets, says our guest Jeung Hyun, portfolio manager for Adelante Capital, which has over $2 billion of domestic REITs under management. "Clearly there's lending still available for these companies that's allowed them to survive," Hyun tells Aaron and Henry in the accompanying clip.

Another trend that's helping commercial real estate -- few, new office space buildings. "To a certain extent people are assuming that the recovery is going to be sharper than normal" because of the lower inventory, Hyun says.

Are banks extending credit & pretending?

Hold on. Clearly there are whispers and anecdotes of excess inventory and even "shadow" inventory. In other words, banks that are extending credit and hoping all will be OK by the time the loans come due.

Hyun argues there's clarity in details. More stand-alone retailers have been built than regional malls. And without a doubt, there's concern about the wave of secured mortgages coming due. Plus, the Fed this week ended its program of buying mortgage-backed and agency securities. Can housing stand on its own two feet?

But Hyun argues not all mortgages will be problematic. Some were inked -- well before the height of the housing bubble in 2007-08 -- when underwriting standards were still high.

Biggest job gain in 3 yrs pushes up interest rates

NEW YORK (AP) -- The biggest increase in jobs in three years pushed interest rates to their highest level since before the worst days of the credit crisis in 2008.

With the stock market closed for Good Friday, investors had a shortened day of trading in the bond market to react to the Labor Department's report that employers added the most jobs in March since before the recession began in December 2007.

Treasury prices fell after the report, sending their yields higher. Bond prices tend to fall as investors' confidence grows and demand for safe-haven investments wanes.

The yield on the 10-year Treasury note rose to 3.94 percent from 3.87 percent late Thursday, its highest level since last June and the latest sign of confidence that the U.S. economy is recovering. The yield on the 10-year note is tied to many kinds of consumer loans. The increase could raise borrowing costs for mortgages and other debt.

Chik Quintans, a certified mortgage planner at Atlas Mortgage Inc. in Lynnwood, Wash., said rates have gone up following the jobs report. The rate on a 30-year fixed mortgage Friday was 5.125 percent, up from 4.875 late Thursday. Less than two weeks ago, the rate was about 4.75 percent.

Barclays Capital Research called the increase in hiring by private employers "solid." Other analysts also said the numbers were encouraging, pointing to a higher open when stock trading resumes Monday.

"The bond market seems to have taken it as a very positive number," said Andrew Neale, head of portfolio management at Fogel Neale Partners in New York.

It was an unusual day for investors, with the biggest economic news of the month coming out on a holiday for stock markets in U.S. and Europe.

Stock futures contracts rose in an abbreviated session of electronic trading. U.S. investors will get their first taste of how the upbeat report will drive stocks when trading in Asia begins late Sunday. Dow Jones industrial average futures and Standard & Poor's 500 index futures each rose about 0.3 percent.

The yield on the 10-year note is approaching 4 percent, a level that hasn't been seen since October 2008, just before the financial crisis peaked. The 10-year's yield went as high as 4.09 percent that month, before plummeting as low as 2.06 percent in December 2008 as the credit crisis erupted and investors poured money into bonds as they cut back their exposure to risk.

Friday's trading was the closest the yield has been to 4 percent since June, when it reached 3.96 percent.

The Labor Department said employers added 162,000 jobs in March. Economists had forecast an increase of 190,000 jobs. However, private employers accounted for most of the growth. Some analysts had forecast that temporary government hiring for the 2010 census would play a bigger role.

The dollar rose as confidence increased about the U.S. economy. The ICE Futures US dollar index, which measures the dollar against six currencies, rose 0.6 percent.