Eurozone / Deadzone

Well, G 20 came and went in early Nov. at Cannes. The new package from the Euro leaders put
no more hard money on the table. Instead, they passed the hat, and yup, no new hard money was
put on the table. Merkel raised the issue of a more compact Euro, and Berlusconi and the Italian
bond market were thrown under the bus shortly thereafter. There is a new top guy in Greece and
Italy's senate passed an austerity measure, helping to pave the way for Berlusconi's departure and
probable new technocratic leadership. So, operating on the cheap, Euro authorities have wrought
tough change on recalcitrants Greece and Italy. Perhaps tough measures like these were needed to
push the PIIGs constellation in the right direction, but the EU desperately needs to grow and here
is where the longer term focus must be.

Today, there are rumors that the ECB, which has held back on new, large bond purchases, may
be ready to buy an oversold Italian bond market in a big way to signal that Italy may have finally
stepped on the "right" course. All interesting stuff if you are trading Euro sovereigns or day
trading stocks and commodities.

The EU does seem headed into an economic downturn and you have to be careful here, as the
EU banks are dumping the weaker sovereign credits and are putting sizable portions of their
loan book up for sale to comply with new capital requirements. Private sector credit flows
within the EU will suffer as will flows to eastern Europe and even to Asia. Private sector
credit crunches tend to make economic downturns far worse, and in the case of the EU, a
diminished tax revenue take off of weaker profits and earnings, will negatively affect sovereign
budgets. So, multiple austerity measures seem poised to cast a a larger and darker shadow on
EU area profits.

By year end 2011, SP500 net per share should be running at around a $100 per share. Earlier
estimates for 2012 called for progress to $115 per share, but analysts are receiving more negative
guidance now, and the projections are working their way down to $105.