Huge Gains Possible for European Stocks

The debt crisis of Europe is effectively over, thanks to the latest efforts of Mario Draghi and the European Central Bank (ECB), and supported by the all clear given to the European Stability Mechanism (ESM). You can look toward the turn achieved by U.S. stocks in March 2009 for guidance into the huge capital gains possible for European markets now. Of course, some of those gains have already been taken since the bold statement of the ECB chief in late July. The iShares S&P Europe 350 (NYSE: IEV) has charged forward approximately 15% since the July 26 statement, and American banks with ties to global markets are up even more. Yet, European shares and relative securities could have much more to gain. Though, the dynamic risks of the day could also alter the path of Europe from that taken by American stocks post our financial crisis.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

In March of 2009, it seemed to most Americans, and especially stock market participants, that all was lost. Yet, in the depths of the financial crisis, and well before economic recovery began, stocks marked bottom. That fateful day, March 3, 2009, was the point of inflection. From that day through the end of 2009 the SDPR S&P 500 ETF (NYSE: SPY) gained roughly 63%.

Obviously, serious obstacles remain which might alter the recovery scenario for Europe. For instance, if war breaks out in the Middle East, involving Iran, Israel, other Middle Eastern nations and global powers, all bets are off. The Iran war factor is neither negligible nor insignificant.

Likewise, political disruption within struggling European nations could alter the path for European shares. For instance, the last elections in Greece reflected the frustration of the Greek people with harsh austerity and almost led to Greece’s withdrawal from the euro zone. The result of such an event could have driven similar change in other PIIGS nations, and taken the euro-zone down a completely different direction. Those risks remain.

Finally, economic deterioration within Europe could spark up concern again. For instance, if the rating agencies, Standard & Poor’s (NYSE: MHP) and Moody’s (NYSE: MCO), downgrade Germany’s sovereign debt rating, that would reignite concern. A warning has already been issued to Germany, and its economy has begun to show cracks.

Another group that should benefit substantially from gains made by Europe are the banks with substantial risk tied to the region and the system. This is why the shares of Citigroup (NYSE: C), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) have participated in the latest three months of gains. The shares of Citigroup (C), for instance, are up 32% since July 26; the rest of the group is up similarly. It’s quite ironic that it was Citigroup which sparked the turnaround in American stocks in 2009, when it first reported good news. Other bankers, including Jamie Dimon of JPM, added to the change in tone and stocks never looked back.

In conclusion, I reiterate that while substantial opportunity exists for European and related securities, special dynamic risks could hamper the repeat of what American stocks accomplished in 2009. As always, you are advised to pay close attention to developments and risks, and welcomed to follow my feed which will likewise do so.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Europe is Finally Supported

Germany’s constitutional court ruled in favor of Germany’s participation in the permanent euro-zone bailout plan and fiscal accord for budget discipline. The European Stability Mechanism (ESM) thus ratified by the court, means Germany’s Chancellor and its President, its Parliament and Court are in accord behind the whole of Europe. Thus, finally, Europe seems to have its supports in place, the sort in which markets can believe in. This has European shares higher today and is also driving our own stocks higher as a result. The SPDR S&P 500 ETF (NYSE: SPY) gapped open higher on the news.

It also appears, at least at this point, that Germany will not stand in the way of the European Central Bank’s (ECB) plans to buy bonds of distressed euro area nations. Some even speculate that the ESM will join in that effort. I believe the ECB was able to gain German favor by promising to sterilize its money supply efforts, and thus keep longer term inflation concerns at bay. Interests inside Germany rightly demanded that any increases in the ESM face new approval from Parliament before the German president can sign off on such capital releases.

Stocks in Europe are celebrating today as a result:

European Indexes	European Index ETFs
EURO STOXX 50: +0.6%	iShares Europe (NYSE: IEV): +0.4%
Germany’s DAX: +0.7%	iShares Germany (NYSE: EWG): +1.0%
France’s CAC 40: +0.5%	iShares France (NYSE: EWQ): +0.7%
FTSE 100: +0.1%	iShares U.K. (NYSE: EWU): +0.3%
IBEX 35: +1.0%	iShares Spain (NYSE: EWP): +1.9%
FTSE MIB: +1.2%	iShares Italy (NYSE: EWI): +1.3%
Athens ASE: +5.3%	Global X FTSE Greece (NYSE: GREK): +6.0%

Finally, Europe seems to have solid supports in place to ease pressure on troubled area bonds. This may mark the end of the crisis phase for Europe, but not the conclusion of economic contraction. That said, stocks can now contemplate recovery, and so trading should trend higher, save for when economic data reaches the wire. The euro should likewise mark near-term bottom here, but I expect another factor will threaten Europe shortly, which I will detail in a near-term article. Stay tuned…

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Buy Stocks Now Ahead of FOMC & ECB Actions

Over the next several weeks, given the developments at the European Central Bank (ECB) and the U.S. Federal Reserve, traders should take stocks higher. A look at the three month chart shows the impact of deteriorating economic data globally, but daily action indicates trader interest and hope in further central bank assistance. Therefore, heading into what looks like a likely issuance of new quantitative easing from the American central bank and supportive bond purchases from the Europeans, the next several weeks trading have support.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.


Charts by Yahoo Finance

The 3-month chart of the SPDR S&P 500 Index ETF (NYSE: SPY) shows a flattening of a longer term bullish trend. However, the choppiness in between has mostly been driven by speculation about ECB and U.S. Fed policy action to support. The clearest example of this came when ECB President Mario Draghi strongly stated the ECB would support the euro in late July. That set European stocks on fire, and it came at a time when the region needed some sort of catalyst.



The iShares S&P Europe 350 Index (NYSE: IEV) is up 6.3% since that fateful day. Unfortunately, as time passed, the market began to see that Draghi’s words may not carry with them the will of the euro zone. Bundesbank President Jens Weidmann remains as a key objector, and German Chancellor Angela Merkel declared Germany’s objection to Draghi’s plan today.

The details of the plan are leaking out, but it is expected to be formally presented tomorrow, September 6, 2012. It is thought that the ECB will purchase sovereign short-term bonds of terms of one to three years. While unlimited, those purchases are expected to be offset by sales elsewhere in the system in order to sterilize their impact to euro money supply. That would address my concerns that the central banks of the world, plus factors not yet incorporated into consensus thinking, threaten to make fiat currency worth significantly less over time. Because of the rumored construct of this plan, and assuming it would be approved, the action would ease concerns about the region’s chances of experiencing full recovery. This should lend more support for stocks globally, with a focus on Europe.

Federal Reserve Chairman Bernanke’s Jackson Hole speech last weekend left most market participants (as I see it) feeling more comfortable about the prospect of Fed action in September. I don’t think the rumblings from the GOP convention about Bernanke not being extended an invitation to stay under a Romney administration will serve to keep the independent Federal Reserve from acting in favor of markets and the economy in September. If I was told I would lose my job under certain circumstances, I’m not sure political perception would matter any longer in my decision making. Bernanke has all the more reason to act now in September.

The latest economic data reported yesterday, showing the ISM Manufacturing Index contracted deeper into the red, only demands further action from those who can so flail. The Dow Jones Industrials took a hit on the economic news, but would find support with central bank action as depicted here. The Dow Jones Industrial Average ETF (NYSE: DIA) is higher this morning, after a rough time of it yesterday, and that is likely a sign of what’s to come over the forward few weeks. Hard hit industrial stocks like Caterpillar (NYSE: CAT), General Electric (NYSE: GE) and Deere (NYSE: DE), which fell yesterday, are strongly higher today, I believe on this prospect. So, while the market is lazily returning to its regular speed, you might have an opportunity to set short short-term long bets today. I qualify the buy recommendation to the short short-term, because I see economic results only deteriorating after the central banks act.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A Mess of Mario Draghi's Own Making

European Central Bank (ECB) Chairman Mario Draghi pulled out of his planned appearance at the Kansas City Fed’s Jackson Hole Symposium this weekend. The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it. His appearances since have been highly heralded, as markets wait for follow through. I warned about his scheduled appearance just yesterday, saying, “The euro is likely to face a test after its recent rally, especially if Mario Draghi can only offer more talk without follow through, as I expect this weekend.” So it would appear that Draghi has taken some age old wisdom to heart, and that would be, “If you don’t have something nice to say, don’t say anything at all.”

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Mario Draghi's Mess

“The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it.”

Federal Reserve Chairman Bernanke will address the Jackson Hole crowd, and the world, this Friday morning at 10:00 AM EDT. Seeing as the Fed boss typically plays by the book, he really should not usher in any new Fed policy this week. Rather, he and the rest of the Federal Open Market Committee (FOMC), to which he is bound, will issue policy as prescribed in September following much deliberation and process.

Considering Draghi was scheduled to partake in a panel discussion on Saturday, it would appear that he would likewise not offer much new news. Draghi, like Bernanke, also has a prescribed process to follow and all sorts of other red tape to work through before issuing policy, and especially before launching any new initiative. This makes it highly unlikely that he could do anything more than disappoint the high expectations of the market this weekend. But, he only has himself to blame for the predicament he finds himself in today.

Shaky markets were reassured by his July 26th statement to a London investment conference marking the start of the Olympics. Draghi’s now infamous declaration read, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Markets mostly focused on the “it will be enough” part, and unfortunately tossed the “within our mandate” portion aside for later chewing. Continuing on an upward trajectory begun in early June, the SPDR S&P 500 (NYSE: SPY) climbed another 3.8% from July 26 through August 28. The SPDR Dow Jones Industrials Average (NYSE: DIA) gained 2.0% and the PowerShares QQQ (Nasdaq: QQQ) has risen 7.9%. Obviously, Draghi has had more influence on the direction of the euro and European shares. You can see the stabilizing impact of Draghi’s statement clearly in the chart of the euro/dollar comparison.


Chart by Yahoo Finance

Draghi’s impact is also prominently behind the more significant gains of European stocks, in comparison to U.S. shares since July 26. The iShares S&P Europe 350 (NYSE: IEV) has gained 7.0% through August 28. ETFs of the hardest hit nations of Europe have done even better; those are the nations that would benefit from ECB purchases of their debt.

ETF SECURITY	CHANGE JULY 26 – AUG. 28
iShares MSCI Spain Index (NYSE: EWP)	+19.6%
iShares MSCI Italy Index (NYSE: EWI)	+15.4%
Global X FTSE Greece 20 (NYSE: GREK)	+11.5%
iShares MSCI France Index (NYSE: EWQ)	+8.9%
iShares MSCI Germany Index (NYSE: EWG)	+8.6%

But since Draghi’s statement, he’s found himself backtracking and qualifying comments. His announcement about missing Jackson Hole to focus on an otherwise busy work schedule was clearly carefully constructed to manage expectations. Spanish yields have expanded since the news broke that he would not appear at the central bank event. However, his reason for not making it, because of workload, implies he’s possibly working on something that might support the euro and the region generally. It’s quite a mess he’s found himself in, and one our own Fed chief does his best to avoid. It is not central bank concern to manage equity market expectations, but stock investors follow closely the words of those who impact the cost of corporate funding. So, wise bankers carefully word every statement so as to keep speculators from reading into anything.

Draghi’s infamous words did exactly the opposite. I suppose the leaders of Europe are happy about that today, since the euro has stabilized, yields have eased, and European equity portfolios have fattened. However, the devils in the game at play will eventually take the candy away and replace it with nails. It’s a game best not entered, and one I’m sure Mario Draghi wishes he did not step into. If this is not yet so, I’m certain that someday he will regret it.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Spain's Recession Killing the Bull

Spanish data is driving the euro region lower this morning, with all major indexes down on the day. U.S. futures started lower on the news as well. Spain’s GDP contracted by 0.4% in the second quarter, in line with a previous forecast but down from the first quarter’s drop of 0.3%. Expanded spending cuts on painful austerity cut into Spanish consumer spending, leading to a widened budget deficit. Yet, Spanish bond yield’s touched a three-month low at auction today. Bond yields are down more than 130 basis points since late July on the 10-year bond benchmark. Still, the IBEX 35 was down a half point when measured here this morning. Still, the iShares MSCI Spain Index Fund (EWP) seems to be finding some footing, as more aid for the peripherals of the EU seems to be on the way. Spain’s Prime Minister Mariano Rajoy is scheduled to meet with EU President Herman Van Rompuy today to discuss just that.


Chart from Yahoo Finance

The Spanish recession is certainly not being remedied by austerity today, as consumer spending declined 1.0% in the second quarter. A Deputy Economic Minister called the current state of Spain’s economic cycle, the “moment of steepest fall”, and said it would continue into the second half of the year. Spain’s big hope is that the European Central Bank (ECB) might buy its bonds to help lower its borrowing costs. In a new bond offering today, Spain managed to raise more funds than expected. Unfortunately, there’s little confidence being expressed by Spaniards, with private sector deposits at Spanish banks down 4.7% in July.

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.6%	S&P/ASX 200: +0.4%
DAX: -0.5%	Nikkei 225: -0.6%
CAC 40: -0.7%	Hang Seng: +0.1%
FTSE 100: -0.2%	Shanghai Shenzhen CSI 300: +0.5%
IBEX 35: -0.5%	India’s BSE Sensex 30: -0.3%

Prices measured at 7:45 AM EDT

Separately, French officials announced a gasoline price reduction of approximately six euro cents per liter, as a campaign promise of President Francois Hollande is fulfilled. The CAC 40 decline of 0.7% was leading the region lower, despite the move. The iShares MSCI France Index (EWQ) has risen recently as France has gained with most markets, but it’s vulnerable today.

The euro rose Tuesday against the dollar on that same ECB hope. Mario Draghi will speak in Jackson Hole this weekend, following Ben Bernanke’s highly heralded speech scheduled for Friday morning. The PowerShares DB US Dollar Index Bearish (UDN) looks to benefit this morning, as the PowerShares DB US Dollar Index Bullish (UUP) is down in early trade. The euro rose 0.4% this morning to $1.2547. The euro is likely to face a test after its recent rally, especially if Mario Draghi can only offer more talk without follow through, as I expect this weekend. However, before long, I also expect the ECB to buy hard-pressed euro nation bonds; investors are keeping that in mind as well.

The shares of major European banks face a test today, but action should be kept in check by the pending discussion from Jackson Hole. Banco Santander S.A. (SAN) is lower 1% in early trading today on the poor Spanish data, and faces a tough go today. Shares of Citigroup (C) are down fractionally and Deutsche Bank (DB) should neither find support. Europe weighs on U.S. stocks today, and has the SPDR S&P 500 down fractionally in early going.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Germans Pull the Rug Out

Last week’s market rally of 1.0% on the SPDR S&P 500 (SPY) benefited from German Chancellor Angela Merkel’s seemingly supportive position for European Central Bank (ECB) purchases of bonds of troubled euro-area members. However, Monday, Germany’s central bank, the Bundesbank, reiterated its stance against bond purchases. A German Finance Ministry Spokesperson, Martin Kotthaus, stated, “I am not aware of any such plans and haven’t heard anything.” The ECB stated via a der Spiegel, “It is absolutely misleading to report on decisions, which have not yet been taken and also on individual views, which have not yet been discussed by the ECB's Governing Council.” As a result of this news, the euro is lower today, stocks are mostly lower across Europe, and U.S. stocks are indicating lower.

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.1%	S&P/ASX 200: -0.1%
FTSE 100: -0.4%	Nikkei 225: +0.1%
DAX: +0.05%	Hang Seng: -0.1%
CAC 40: -0.2%	Shanghai Shenzhen CSI 300: -0.5%
FTSE MIB: -0.3%	Korea KOSPI: Unch.

An ETF measuring European shares, the iShares S&P Europe 350 (NYSE: IEV), was down 0.6% in early trading Monday morning. The ProShares UltraShort Euro (NYSE: EUO) is up 0.25%, as the euro is off 0.17% against the US dollar. The PowerShares DB US Dollar Index Bullish (NYSE: UUP) is up 0.09%. The iPath S&P GSCI Crude Oil TR Index (NYSE: OIL) is lower by 0.5%, while the SPDR Gold Shares (NYSE: GLD) is down 0.09%.

In the U.S. the SPDR S&P 500 (NYSE: SPY) was fractionally lower before the bell rang on this news and expanding the loss in early trading. The SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (NYSE: QQQ) were each down fractionally as well.

US Economic Drivers
U.S. investors received one economic data point this morning. The Chicago Fed National Activity Index was reported improved to negative 0.13 for July, as June’s index was revised downward to -0.34 from -0.15. The gauge of broad economic activity, not just manufacturing, doesn’t match what we saw in the Leading Indicators Index (LEI), which indicated economic expansion in July. It does fit the improvement in the Consumer Sentiment Index for August reported Friday, though each measure still reflected a poor environment in an absolute state.

The 3-month moving average for this index fell to negative 0.21, from negative 0.18 after revision. Despite the release reporting improvement, the news should contribute to drive some of last week’s gains out of cyclical American shares including leaders General Electric (NYSE: GE), Ford (NYSE: F), Bank of America (NYSE: BAC) and others.

Corporate Drivers
Lowe’s (NYSE: LOW) shares are trading lower by 5% on the company’s earnings report. Lowe’s net income declined as it reported EPS of $0.68 from ongoing operations, two cents short of Wall Street’s view. The company also revised its EPS guidance downward, and to a point short of analysts’ consensus.

The day’s corporate events include highlighted EPS reports from Lowe’s (LOW), Urban Outfitters (Nasdaq: URBN), Camelot Information (NYSE: CIS), Charm Communications (Nasdaq: CHRM), Concord Medical (NYSE: CCM), dELiA*s (Nasdaq: DLIA), eLong (Nasdaq: LONG), Fabrinet (NYSE: FN), Fuwei Films (Nasdaq: FFHL), Hastings Entertainment (Nasdaq: HAST), Nordson (Nasdaq: NDSN), ShangPharma (NYSE: SHP), Tuesday Morning (Nasdaq: TUES), VisionChina Media (Nasdaq: VISN) and Zoom Technologies (Nasdaq: ZOOM).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Central Bankers are Horrible at Shock and Awe

The SPDR S&P 500 (NYSE: SPY) is lower by nearly a half point, as the market cares more today about what caused three major international central banks to take action than about the actions they took. That’s because central bankers are horrible at shock and awe tactics.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The European Central Bank (ECB), Bank of England (NYSE: BOE) and China’s central bank each took substantial steps to support their respective economies Thursday. The ECB cut its key rate by a quarter-point, yet the Euro STOXX 50 is down 1.6% at the hour of scribbling here, while the Vanguard MSCI Europe ETF (NYSE: VGK) is down 2%. The BOE expanded its quantitative easing program, yet the FTSE 100 Index is down fractionally, while the iShares MSCI United Kingdom Index (NYSE: EWU) is down nearly a point. China surprised the market with its own rate cut announcement, yet the iShares FTSE China 25 Index Fund (NYSE: FXI) is in the red. So what gives?

The day brought attention to the depths of the deterioration in Europe, as key bankers tend to support their decisions with explanatory discussion. Only in this case, the market might have been better served by some discretion. Instead, the market is hearing about how Germany, the keystone of the euro-zone economy, is showing signs of breaking. The German DAX offers good evidence of that concern, as it drifts 0.9%. Panic seems to be striking in fact, with Germany’s Deutsche Bank (NYSE: DB) collapsing 4.5% at this hour. Of course, Lloyd’s Banking Group (NYSE: LYG) is not doing much better, down 4.1%.

Once Mario Draghi, the ECB chief, finished speaking, Italian and Spanish bond yields spiked. Spanish 10-year bond yields climbed 41 basis points, to 6.81 percent. Italian bond yields rose 21 basis points to 5.97%. Both approached levels seen just before the EU summit breakthrough. Apparently, investors had also built in hopes of a bolder ECB action, a surprise result of the summit.

Instead, investors are worried today about what insiders might know about key global economies in the U.K., E.U. and China. The seemingly coordinated action only heightened fear by raising concern about the critical economies of the world, ex-US. American banks bearing risk are down in sympathy today as well, with Citigroup (NYSE: C) off 3%, J.P. Morgan Chase (NYSE: JPM) off 3.6%, Morgan Stanley down 2.7% and Goldman Sachs (NYSE: GS) sliding 2.2%.

Article is relevant to Banco Santander (NYSE: STD), ITA (Nasdaq: ITUB), UBS (NYSE: UBS), Westpac Banking (NYSE: WBK), Barclays (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Bank (NYSE: AIB), Banco Latinamericano (NYSE: BLX), National Bank of Greece (NYSE: NBG), Royal Bank of Canada (NYSE: RY), BBVA Banco Frances (NYSE: BFR), The Bank of Ireland (NYSE: IRE), Bank of Montreal (NYSE: BMO), Canadian Imperial Bank of Commerce (NYSE: CM), ING Groep (NYSE: ING).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.