U.S. Data Trumps Europe for Now - Why 5 Stocks Are Moving

Stocks were up into the midday Wednesday, as a decent flow of U.S. economic data and a few corporate reports outweighed ongoing European-based anxiety. Enjoy it while you can, because I expect the tide to turn as we approach the EU summit result Friday. Much emphasis is being placed on the importance of the event by relevant parties in Italy and Spain and the financial markets, as Germany seems to hold course. The SPDR S&P 500 (NYSE: SPY) is up 0.9% near noon, but I expect we’ll head lower ahead of Friday.

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.

Wall Street Today

Durable Goods Orders were reported for the month of May this morning. The data was better than miserable but less than robust, and many are focusing today on the slowing of China and its impending impact on activity. Durables orders recovered by 1.1% after losing 0.2% (revised) in April. Economists had been looking for a smaller 0.4% increase, based on Bloomberg’s survey. Excluding high-ticket transportation items, durables orders rose 0.4% against last month’s reported decline of 0.6%. Economists had been looking for a gain of 0.8% here though. Boeing (NYSE: BA) benefited from twice as many orders in May (8) versus April. Nondefense capital goods orders excluding aircraft, which is closely followed as a measure of economic health, gained 1.6% in May, against an April decline of 1.4%. Unfortunately for long traders, the positive leaning data will likely be overwhelmed by Europe and China concerns before long.

Mortgage activity fell off in the latest reported week. A dramatic swing in refinance activity lower was likely the result of the pulling forward of activity into the prior week. The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey showed its Market Composite Index fell 7.1% in the week ending June 22, 2012. Mortgage rates were mixed through the week, with average effective rate increases in 30-year fixed rate jumbo loan contracts and 5/1 ARMS contracts offset by effective rate decreases in 30-year fixed rate conforming loan contracts, FHA sponsored 30-year fixed rate mortgages and 15-year fixed rate mortgages. The Refinance Index fell 8% week-to-week, as the prior week’s initiation of lower premiums for FHA sponsored loan refinancing drew forward pending business. The Purchase Index, measuring applications for mortgages tied to the purchase of homes, decreased 1% as it normalized against the prior week’s catalyst. Major mortgage lenders shares including Bank of America (NYSE: BAC) were under pressure this week, partly on the Moody’s downgrade of late last week and on heightened concern about Europe.

The National Association of Realtors (NAR) reported its Pending Home Sales Index increased 5.9% in May. The gain came off a 5.5% decline in April, but the index was at its highest level in two years, at a mark of 101.1. Economists had been looking for the measure of new contract signings to increase just 1.2%. It’s a mild positive for stocks, but in my view, not enough to overcome the global weight against the market for long. The nation’s third largest homebuilder by revenues, Lennar (NYSE: LEN), reported Street-beating operating earnings and its shares were up 5% as a result. The company reported strong backlog and order growth, driving the gain.

The EIA’s Petroleum Status Report covering the week ending June 22 showed crude oil inventory decreased slightly by 0.1 million barrels but remained above the upper limit of the average range for this time of year. Total motor gasoline inventory increased by 2.1 million barrels, but remain in the lower limit of the average range for this time of year. Crude oil futures were higher on the day while the nearest term Gasoline RBOB futures were still off 1.1% just after the report was published. The United States Oil ETF (NYSE: USO) was up 0.6% on the news while the United States Gasoline ETF (NYSE: UGA) was lower 0.7%.

The corporate wire has a slew of deal restricted analysts at the major Wall Street houses including Barclays (NYSE: BCS), Citigroup (NYSE: C), Credit Suisse (NYSE: CS) and Bank of America – Merrill Lynch (NYSE: BAC) issuing their first research since the Facebook (NYSE: FB) IPO, with the average analysts’ price target at approximately $37.71, with the reports still flowing. The above listed banks all rated Facebook (NYSE: FB) with ratings equivalent to neutral positioning. BMO Capital Markets rated the stock “underperform,” and set its price target at $25. The analysts of the three lead banks of the IPO underwriting, Morgan Stanley (NYSE: MS), J.P. Morgan (NYSE: JPM) and Goldman Sachs (NYSE: GS) all rated Facebook a “buy” and set target prices at $38, $45 and $42, respectively. In my report published today, I discuss the overvaluation of Facebook and other social media firms based on spammer skewed member data. Follow me at the Wall Street Greek blog.

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.

Wall Street Today - A Hot One for Ya

The hot day for the East Coast will be a sizzler for Wall Street as well. That’s because the latest relief rally has hinged itself onto the Federal Reserve Announcement due at 12:30 PM ET today. The Fed has broken up its format into three chunks, with a 12:30 PM policy announcement followed by the 2:00 PM release of the FOMC Forecasts, followed by the Chairman’s press conference at 2:15 PM ET.

The extravagance of the matter has only added to the hopes of the market, but alas, I fear the market may be disappointed today; first, because I’m not sure the Fed sees a need for new action (though the market is desperate for ingenuity), and secondly because I do not believe there’s much the Fed can do at this point, except further spread risk for a later grand finale for the dollar. This is the key market driver today without a doubt. Expectations will continue to drive market action up to the announcement, and the series of Fed actions through the steamy afternoon will control the close. At the open, the SPDR S&P 500 (NYSE: SPY) was down fractionally, perhaps already feeling the heat on the Fed will drive the market to faint.

The stocks likely to best reflect the effect of the Fed will be the financials, including the nation’s largest: Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), Morgan Stanley (NYSE: MS), et al. The last five days trading in the Financial Select Sector SPDR (NYSE: XLF) shows a certain positive expectation (attribution to Yahoo Finance for the chart). Unfortunately, I expect those hopes will be deflated in short time.



The rest of the economic slate is light for Wednesday, including only the regular mortgage applications report and the petroleum inventory data.

The Mortgage Bankers Association (MBA) reported on Weekly Applications earlier this morning. For the week ending June 15, 2012, the MBA’s Market Composite Index showed a mortgage activity decline of 0.8% week-to-week on a seasonally adjusted basis. Mortgage applications tied to the purchases of homes fell by 9%, while the MBA’s Refinance Index gained by 1% on mortgage rates still near all-time lows. The MBA said the change in “purchase activity” was likely due to recalibration related to the Memorial Day holiday, and is therefore not as alarming as it may seem on the surface. Thus, the shares of homebuilders like PulteGroup (NYSE: PHM) and Toll Brothers (NYSE: TOL) and other market participants including Fannie Mae (OTC: FNMA.OB) and Freddie Mac (OTC: FMCC.OB) are likely to be unaffected by the news.

The EIA reports on Petroleum Status at 10:30 AM ET each Wednesday. In its last report covering the period ending June 8, U.S. commercial crude oil inventories decreased by 0.2 million barrels, but remained above the upper limit of the average range for this time of year. Total motor gasoline inventories fell by 1.7 million barrels with the summer driving season upon us now. Gasoline stores were below the lower limit of the average range for this time of year, though gas prices continue to ease with rising economic concerns. The shares of Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) were each trading fractionally higher to start the day Wednesday.

In conclusion, the day’s trade should be driven by the Federal Reserve actions starting at 12:30 PM. We’re looking for market disappointment on little to no new action and/or a realization that there may be little new constructive action the Fed can take at this point.

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.

Take Profits on Harsh Greek and European Realities

All is well with Europe, as the pro-euro and accepting of austerity Greek political party, New Democracy, garnered the majority of the second vote. Danger has been averted, so now Greece and Europe can return to the service of the devil we all know. The bounty of this victory is the same economic distress Europe was dealing with a month and a half ago, which while better than what might have been today, still sucks.

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.

Greek Victory?

After a short burst for stocks on the win of the lesser devil, the SPDR S&P 500 (NYSE: SPY) was down fractionally in early morning trade; the PowerShares QQQ (Nasdaq: QQQ) and SPDR Dow Jones Industrial Average (NYSE: DIA) were mixed, reflecting market indecision. Spanish bond yields stuck stubbornly higher as investors took note of how close we stand to the abyss. Europe has turned downward into the morn, with the iShares S&P Europe 350 Index (NYSE: IEV) and the Vanguard MSCI Europe ETF (NYSE: VGK) down 1% and 0.6%, respectively at this hour. Poor Asian traders were lured into celebration by Sunday’s newswire, only to be trapped deep into the green by the close. The Nikkei 225 and Hang Seng closed higher by 1.8% and 1.0%, respectively. However, Asian tied securities trading in the States are reflecting a different likely open for Asia Tuesday, with the iShares MSCI All Country Asia ex-Japan (Nasdaq: AAXJ) trading shyly down fractionally.

The big foreign based international banks probably best reflect the election result market driver, and the shares of those and a U.S. representative here are decidedly lower:

Company	Intraday Performance
Deutsche Bank (NYSE: DB)	-2.1%
Banco Santander (NYSE: STD)	-4.2%
Citigroup (NYSE: C)	-1.3%
Credit Agricole (Paris: ACA.PA)	-3.1%
UBS (NYSE: UBS)	-1.5%
Societe Generale (Paris: GLE.PA)	-3.6%
Lloyds (NYSE: LYG)	-2.1%
Barclays (NYSE: BCS)	-2.1%
Credit Suisse (NYSE: CS)	-1.8%
ING Groep (NYSE: ING)	-4.0%
National Bank of Greece (NYSE: NBG)	-3.9%

So what to do now?
Last week, I suggest investors look to a rally as I expected the PIIGS to escape slaughter. In the process, I also contemplated this market reflection of reality. The market is selfish with a what have you done for me lately mentality. So, as investors reflect on the still deteriorating economic situation in Europe and the deeply flawed focus on austerity, initiated at precisely the wrong moment, opportunities for capital gain are limited. That said, Southern Europeans should continue to get into better shape on starvation, and psychologists and social workers should continue to be swamped with booming business. What it means for us traders scraping for profit is the end of the election-tied long trade. Close it out if you haven’t yet, or get caught with a bag of worms. Let me reiterate though that for the long-term I still see a deteriorating global political and economic situation.

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.

Wall Street News - A Critical Review

Greece weighs heavily on stocks today, with elections taking place this weekend. Up until a couple of days ago, the market was completely terrified that the disruptive Greek political coalition, Syriza, might win the second time around. Now being taken seriously, after finishing second to New Democracy, it might draw the support of voters who wouldn’t previously vote if they thought they couldn’t make a difference.

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.

Wall Street Today

Polls in Greece have shown both parties winning this second time around, but a poll of wagers being placed on the election showed yesterday that New Democracy was garnering the majority of the bets. That news, and some comments by Syriza’s leader, Alexis Tsipras, within which he expressed interest in keeping Greece within the euro-zone, have helped spur a market rally.

I believe New Democracy will win in this wakeup call election, and the current rally will gain more confidence on the great relief of investors. Indeed, the pressure placed on Spanish, Italian and Portuguese borrowing costs should ease as a consequence, and the danger would be averted for now. U.S. futures were higher this morning, after the SPDR S&P 500 (NYSE: SPY) rose 1.1% Thursday. The SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) gained 1.2% and 0.4%, respectively, Thursday. Before the close and ahead of a figuratively long weekend, I expect investors will pull back a bit.

International Markets are in full-blown rally mode Friday on that same hope expressed by U.S. markets Thursday. In the news, the Bank of Japan kept from changing its asset buying program, but central banks globally stand at the ready to act on any disruption produced by the Greek result.

Europe:
EURO STOXX 50 Price EUR: +1.2%
FTSE 100: +0.3%
DAX: +1.1%
CAC 40: +1.5%

Asia:
Nikkei 225: +0.01%
Hang Seng: +2.3%
S&P/ASX 200: +0.4%

U.S. Economic Data Schedule: There’s a lot of data on tap for a Friday today, with the Empire State Manufacturing Survey, Treasury International Capital (TIC), Industrial Production and the Reuters/Michigan Consumer Sentiment Index all due.

June’s reporting of the Empire State Manufacturing Survey showed a sharp decline, and could impact industrial shares within the Industrial Select Sector SPDR (NYSE: XLI) and major manufacturers like General Electric (NYSE: GE) and Caterpillar (NYSE: CAT). The New York area measure of manufacturing showed a 15 point drop in its General Business Conditions Index to 2.3, down from 17.1 in May. Economists were looking for slippage here, but only to 13.8. New Orders fell 6 points while Shipments dropped a steep 19 points, indicating a serious drop-off in activity and offering yet another sign of recession. Be sure to see our upcoming report on recession, or just follow our blog.

The Reuters/University of Michigan Consumer Sentiment Index is due at 9:55 AM ET, and economists are looking for a reading of 77.5, which would mark a drop from the last check at 79.3. Bloomberg’s Consumer Comfort Index was just reported improved again yesterday, to negative 36.4, from minus 37.6. I wouldn’t read anything from the weekly measure though, as it has been less than correlated with the Michigan figure in recent history. Instead, the Comfort measure has better coincided with the Conference Board’s Confidence Index.

In other words, I think this data point might be hard to measure but my bet would be with economists, given the nascent trend of stocks and market panic about Europe. It would prove a net negative for stocks if it marked a significant decline, but the market will most likely focus on Greece and the future, and lay its bets on that. This will affect major discount and nonstore retailers like Wal-Mart (NYSE: WMT), the nation’s retailer, and Amazon.com (Nasdaq: AMZN), but I continue to favor Dollar Tree (Nasdaq: DLTR) over those two for company specific reasons. Distressed retailers like J.C. Penney and Sears (Nasdaq: SHLD) should continue to face penalty if consumers are pulling back, where the fate of Best Buy (NYSE: BBY) may more closely rest with the electronics cycle and product introductions from Apple (Nasdaq: AAPL).

The Treasury International Capital (TIC) Report showed a net outflow of capital in April. Given what happened overseas in May, I would expect the data will prove much different next month, and investors should make note of that before reacting to the capital flight from the States shown here. The net outflow of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was $20.5 billion. With attention to what I discussed about May, take note that April may prove an important indicator of things to come once trouble overseas quells, should it calm. Still, I wouldn’t expect this news to much impact major bankers Citigroup (NYSE: C), J.P. Morgan Chase (NYSE: JPM) or Goldman Sachs (NYSE: GS) today. I do, however, hear good things about capital flows into Switzerland, so UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) might benefit if not for other factors. UBS has shown some life of late, but perhaps European exposure to CS has it tanking through it all. Be mindful of exposure to the pending catastrophe before laying down chips here.

Industrial Production was reported this morning and showed a contraction for the month of May. Production dropped by 0.1% against economists’ consensus expectation for no change. May also measured poorly against April’s revised lower increase of 1.0%. With regard to the manufacturing sector, production contracted by 0.4%, against the revised higher April rate of +0.7%. Economists were looking for a smaller contraction of 0.3% here, so the news is clearly negative for manufacturing and all others. While the goods sector of our economy is the smaller against services, it still reflects the broader economy, and offers yet another sign of slowing. Capacity Utilization contracted as a result to 79% of capacity, from 79.2% in April. Take note, however, that both production and utilization remain higher than they were in March. That said, change in direction matters critically here.

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 as PIIGS will Escape Slaughter!

With the Greek elections, the second of the sort, due this weekend, bond investors have been leading the PIIGS to slaughter this week. Rising bond yields in Spain forced the pivotal European nation to seek assistance last weekend, which in turn drew a downgrade by Moody’s (NYSE: MCO) this morning. The threshold to the ultimate disaster may soon be breached, with Italian bond yields rising sharply today. But, never fear dear readers and panicked investors, because the Greek result seems set up for a relief rally. So, please be sure to read this report full through.

Relative tickers include SPDR S&P 500 (NYSE: SPY), Vanguard MSCI Europe ETF (NYSE: VGK), iShares MSCI Spain Index (NYSE: EWP), iShares MSCI Italy Index (NYSE: EWI), Global X FTSE Greece 20 ETF (NYSE: GREK), National Bank of Greece (NYSE: NBG), Coca-Cola Hellenic (NYSE: CCH), Hellenic Telecommunications (OTC: HLTOY) and Marfin Investment (MIG.AT).

Buy Stocks Now

Spain’s sovereign debt rating was cut to one level above junk today, to Baa3, from A3. Moody’s said Spanish risk was heightened due to the risk of a Greek exit from the euro zone, and resulting full catastrophe. This is of course the market’s worst nightmare, because if debt costs increase across Europe’s most indebted nations, it might force the EU’s leading backers (aka Germany and France) to re-evaluate whether it’s worthwhile for them to continue carrying their cross. Thus, it could be the end of the euro-zone as we know it, or worse yet, the end of Europe’s united economy. That’s why stocks have been on the downslide up until now.

Wall Street is bothered by the Spanish 10-year bond rate above 7% today, up markedly from yesterday. If Spain cannot borrow at manageable cost, it will be in need of the same sort of rescue Greece keeps receiving. The problem here is of course that the Spanish economy is much more significant than the Greek feta foray version. Spain represents the world’s 12th largest economy in fact, but the disease would likely spread from there, which is terrifying Brussels today.

Italy is even more important than Greece or Spain, and while Italian 10-year bond costs hardly moved today, the nation’s just issued debt was sold at much higher cost. Italian 3-year bond yields were up more than a percentage point, while 7-year bonds almost reached a point higher as well. This is the worst case scenario that the world has sought to mitigate since the Greek crisis began. As a result, European shares were lower Thursday morning, with the Euro STOXX 50 Price EUR down 0.3% nearing the day’s close; but that was a bit better than the start of the day.

In fact, the Vanguard MSCI Europe ETF (NYSE: VGK), iShares MSCI Spain Index (NYSE: EWP) and the iShares MSCI Italy Index (NYSE: EWI) are each markedly higher Thursday. Even the Global X FTSE Greece 20 ETF (NYSE: GREK) is up 9.5%. Heck, the National Bank of Greece (NYSE: NBG), Coca-Cola Hellenic (NYSE: CCH), Hellenic Telecommunications (OTC: HLTOY) and Marfin Investment (MIG.AT) were all higher by large margin. So what gives then?

A bit of interesting news reached the wire over the past couple days, but it was largely overlooked by the market. The head of the disruptive Greek political coalition, Syriza, Alexis Tsipras, said that he would not lead Greece out of the euro zone. Well, that would seem to defuse the ticking time bomb, because the market’s greatest concern has been that Greek political change might change the course for Greece with regard to its European monetary ties. That’s exactly what speculative smart money is betting against today, sending these shares in what would seem counterintuitive direction, which is higher. That’s the direction I would advise aggressive investors to take as well to participate in what should be a super relief rally. I think the same is in store for the S&P 500, with the SPDR S&P 500 (NYSE: SPY) off 5.7% since the start of May. Guess what: it’s up Thursday morning and I’m looking for much more over the coming hours and days.

This is a forecast that runs against the tide, so I’m out on a limb. Give an unbiased strategist some respect for the guts to make such a call, and credit if my forecast proves true. Follow our blog for more insight and actionable advice.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

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.

Real Estate or Stocks in 2012?

How does an investor assess risk? How does an investor identify potential problems with the stocks of the firms in one's portfolio? For instance, is there exposure to Greece, Spain, Ireland or Turkey? Will the company experience parts shortages from Japan or Myanmar? What are the currency implications of an appreciating or depreciating US Dollar on corporate profits? Can the record profits be repeated year after year, after year, to justify the P/E that reflects that same growth? Labor problems in China, union problems in Europe, and fluctuating transportation and commodity costs exasperate attempts at research. Most of these issues are outside of the average investor’s ability to foresee or control. Furthermore, the stock market's movements seem to be faster going down than going up; months of steady improvement can be destroyed in the matter of a few days, causing extreme angst.

Relative tickers: SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD) and Calamos Asset Management (Nasdaq: CLMS).

Real Estate or Stocks?

With the possibility of a global recession and a European depression, the prospects for stocks seem to be limited. Opinions range from a mild downturn to an economic collapse; however, there are very few forecasting an immediate return to global growth. The financial and social burden caused by debt is escalating as additional debt is used to service existing debt, compounding the problem. Tax revenue is being diverted from essential social services and fiscal incentives used to promote employment to totally non-productive interest payments. As more debt is added, the portion of the revenue collected and allocated to debt service is expanding exponentially.

The world’s governments are essentially borrowing at 0%, but when the repression of rates comes to an end, rates will rise to their true market level and the debt service will overwhelm the economies of the globe. Rates have been artificially lowered to force conservative cash into the economy in search of a riskier return, but eventually true market forces will prevail and the ensuing result will be explosive. Holders of Treasury Bonds have enjoyed extraordinary returns, receiving both interest payments and capital gains as rates have been driven down by the Federal Reserve's “Operation Twist”. Holders of Greek, Spanish, Portuguese, and Italian bonds felt very comfortable just a mere 24 months ago, but now things are radically different for them. Understandably, Treasury Bonds offer protection from a deflating environment, and while backed by the world's reserve currency their safety should be assured. The key word here is “should”. There exist two possibilities of which neither is pretty!

Currently, the 30-year Treasury Bond rate is 3%. The Federal Reserve has been pushing the rate down; a slight rise to 4% would significantly reduce the value of the bond. Should the rates rise to 5% or 6%, which is a more normal rate historically speaking, the ensuing capital loss could be as high as 50%. If inflation or even inflationary expectations started to brew, the losses could be staggering. Events across Europe could force weaker nations to seek “bankruptcy protection,” and default on their debt. Chaos would ensue, but eventually order would be restored and a pathway to recovery established.

The calamity of a default might be considered the lesser of two evils. Default and nine months of chaos may be preferable over 10 to 20 years of austerity. Should default become an acceptable option, then a cascade of nations, provinces, states, municipalities, localities, councils, and corporations could default. It is then not totally unthinkable that our great reserve currency might also default to preserve its integrity. As unthinkable as a global default might be, it is a possibility that needs to be considered, as it would allow for recovery.

Accompanying recovery would be inflation, as everything would be adjusting to new currency values and things would be in demand. Perhaps the rise of gold and silver over the last decade in an obviously deflating economy is forecasting turmoil in fiat currency and government obligations. Commodities would eventually recover: gas, oil, minerals, lumber, farms, food, water, shelter, etc., causing inflation and further pressuring debt instruments. The silver lining of a default would be the balancing of budgets worldwide with a path to recovery unveiled. This recession that has started in Europe is different from past downturns; it is not controlled by the Federal Reserve regulating rates and money supply. This is a potential cyclic event to correct global excesses.

Long-term treasuries still offer protection of capital in a very uncertain world. They still provide a small income stream to supplement other revenue sources. A portfolio of bonds needs to be risk managed and an “exit strategy” needs to be in place. Should the U.S. slide into recession, interest rates on 30-year bonds could slide even further producing capital gains. However, there will be a time to take profits and not look back. Another advantage of the repression of rates caused by the Federal Reserve is the opportunity to lock in long-term money and leverage cash flowing rentals.

Ironically, the Real Estate Market may be the asset class that preserves and grows wealth. Real estate as an asset class has been devastated and much of the risk of decline has been mitigated by the severe market correction of the past few years. Population pressure will eventually absorb all of the excess and pockets of shortages that are starting to appear most notably in my home market of Phoenix, AZ, one of the most affected markets in the nation. The strategy to employ would be to accumulate rentals in second and third move-up properties in discounted markets with good forward growth prospects, and use current low interest 30-year fixed rate mortgages finance them. The possibility of rising rates and/or market turmoil will curtail new construction and positively enhance the existing housing market. Furthermore, Cap Rates of 5-7% are available increasing to 8-10% cash on cash with use of a simple Fixed Rate Mortgage. This cash flow will be exceptionally important in any economic slowdown as rates will continue to compress and yield will become elusive.

A key component of a 5-year holding horizon is the inflation protection afforded by the “real” in real estate, as well as the growth in revenue potential as scarcities develop. The revenue stream may become of utmost importance as other traditional sources of revenue and paid benefits are curtailed or jeopardized: CD's, money markets, insurance guaranteed annuities funded by sovereign debt, state and municipal pensions may also be at risk if defaults occur. Cuts in Social Security and Medicare may be needed to reduce entitlement costs. Distressed properties discounted below replacement cost are still available, but financial institutes are working hard to clear the properties and take the losses this year. Any “underwater” residence or non-cash flowing investment property needs to be reviewed for liquidation via the “short sale” process while the market is still viable. Looking forward, costs are to be cut, debt is to be reduced, and reserves accumulated.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

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.

Why Stocks Celebrated Disruptive European Elections

Based on the action of stocks Monday, it would seem investors favor the possibility that Europe might finally be rid of Greece. Or it may be that investors have seen the light, and have finally realized that the age of austerity was a dark one. Or, perhaps change of any sort would have been celebrated by a distressed market.

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.

Relevant tickers: NYSE: SPY, Nasdaq: QQQ, NYSE: GREK, OTC: HLTOY.PK, NYSE: IEV, NYSE: VGK, NYSE: EWG, NYSE: IEV, NYSE: EWQ, NYSE: DB, NYSE: STD, Nasdaq: ITUB, NYSE: UBS, NYSE: WBK, NYSE: LYG, NYSE: BCS, NYSE: CS, NYSE: AIB, NYSE: BLX, NYSE: NBG, NYSE: RY, NYSE: BFR, NYSE: IRE, NYSE: BMO, NYSE: CM, NYSE: ING, NYSE: C.

It's a Celebration?

European shares were mostly higher Monday, even after Greeks unseated their socialist rulers, PASOK, the ushers of austerity. So it would seem that more than their fear of a break down in confidence in the EU (that might drive Spanish and Italian bond yields higher), investors maybe worry about keeping a lumbering Greece within the group. But with France electing a socialist, who seems intent on leveling the playing field between the rich and poor, and who does not favor austerity, it would seem maybe something more important is afoot.

Bucking the trend, the Global X FTSE Greece 20 ETF (NYSE: GREK), Hellenic Telecommunications (OTC: HLTOY.PK) and Greek shares generally tumbled, as neither did the New Democracy party gain clear control. The result was likely due to the new democrats’ role in the current catastrophe. Instead, the Radical Left Coalition, or Syriza, finished second in Parliamentary voting. Anti-austerity parties, including even an anti-immigration organization, won seats at the cost of the mainstream, as Greeks expressed their frustration with austerity clearly.

But why are European shares higher, given that Greece could theoretically now reject the austerity prerequisites of European and IMF aid. The Vanguard MSCI Europe ETF (NYSE: VGK) rose 1% Monday, and the iShares S&P Europe 350 (NYSE: IEV) was up 0.8%. The iShares MSCI Germany Index (NYSE: EWG) gained 0.5% and Deutsche Bank (NYSE: DB) rose 1.6%. The popular view seems to be that Francois Hollande, the new French leader, might listen to the reason of German Chancellor Angela Merkel and others now that the election is over. However, I say there is more to it than that.

I think the market has spoken in its efficient and infinite wisdom, and what it is saying is that the age of austerity is over and good riddance to it. The French CAC 40 Index gained 1.65% and the iShares MSCI France Index (NYSE: EWQ) added 1.3% to its stature. American investors were confused, with the SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (Nasdaq: QQQ) erasing initial losses. Maybe it’s just hope that’s selling to investors these days; perhaps change of any sort would be celebrated by a desperate market. In that case, when the high wears off and investors find not much has changed with regard to the lagging economy, stubborn unemployment and burdensome debt load, and on top of that, pressure builds on other nations on the fringe, the celebration should prove short-lived.

It could take time for prospective growth initiatives to have effect, so patience may wear thin. However, shifting the burden from the poor to the rich could be just a vote away for the French and the Greeks. That is precisely why there’s talk today of a potential run of money, with its destination divided, but its origination now decided. Money has been leaving Greece for some time now though, given the duration of its crisis. For France, it’s a new phenomenon. For Europe, it could be the way of the future, and for the United States, it could be a trend that catches on.

Article is relevant to Deutsche Bank (NYSE: DB), Banco Santander (NYSE: STD), ITA (Nasdaq: ITUB), UBS (NYSE: UBS), Westpac Banking (NYSE: WBK), Lloyds Banking Group (NYSE: LYG), 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), Citigroup (NYSE: C).

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’s Election Chaos Could Murder Stocks

The result of Sunday’s elections should spell doomsday for Europe and the stock market too, given what is playing out in Greece. Before the voting began, the polls showed Greece’s two mainstream political parties PASOK and New Democracy could garner just 38% of Parliament combined. With 60+% of the vote counted, the two had fewer than 35% of the votes in total. It appears there will not be enough votes to form a proper coalition, given the distance between the two mainstream parties and the protest vote winners on the fringe.

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.

European Election Fallout

We discussed the Political Risk that is entering the frame for Europe in an article published on April 23rd, and this risk has definitely played a role in the unsettled state of the stock market over the last month. In fact, last week was the worst so far this year for stocks, though the disappointing monthly Employment Situation Report gets the blame for that, with a second straight month of soft job creation noted.

Now, don’t get me wrong, because I’m no fan of austerity implemented during times of economic recession, and I have argued vehemently against today’s popular wisdom in Europe from the start. That’s because it seems too many folks have forgotten that it was precisely this type of activity that turned a mild recession into the Great Depression for the United States. Ben Bernanke knows it very well, but he is also served well by keeping quiet, since his expansionary efforts for the U.S. would have had more detrimental impact to the dollar if not for the hobbled euro, not to mention the tragic earthquake that struck Japan. Conspiracy theorists might also look toward the rating agencies, especially Standard & Poor’s (NYSE: MHP), which seemed to turn up the heat on Europe at a conspicuous moment for the dollar.

The results of the election should ferry in friction for the European master plan. I’m speaking of the drastic change the Germans have engineered for Greece, modeling it after its own image, so that it might receive aid to emerge from the debt it is buried under. It’s too bad though that the powers that be did not factor in the opinion of the Greeks who have been forced to swallow a swift disruptive change to their lifestyle, and all because of the poor management of their government.

Greek private sector debt was relatively small, and yet the Greek people are being asked to pay. Granted, the Greek government’s budget math would have Archimedes turning over in his grave, but some of the austerity measures being forced down Greece’s throat make little sense for an economy under threat of recession. Extending the retirement age was one thing, but firing thousands of public sector workers was mistimed and too immediate in its implementation.

The good thing about democracy is that it allows for the regular evaluation of government actions, and given Greece’s desperate acceptance of every EU command, the government will now be overhauled. What this means is that perhaps a radical voice will eventually emerge from Syntagma Square offering courageous (some would say ignorant) disagreement. With the way things have developed economically speaking, the voice will carry credence as well, and possibly shape a better way for Greece. God willing, it will not leave it outside of the euro zone, but that worst nightmare has a good chance of proving true. For now, not much of anything will get done, given the disjointed polls.

The stock market will reflect this chaotic circumstance Monday, with Asian shares starting the slide already. As of late evening Sunday in the Eastern Time zone, the NIKKEI 225 was lower 2.6% and the MSCI Asia Apex 50 was off 2.4%. European shares seemed sure to follow as I scribbled late Sunday night. They certainly showed signs of it last week, when the SPDR STOXX Europe 50 (NYSE: FEU) sank 1.5% Friday. The Global X FTSE Greece 20 ETF (NYSE: GREK) gained 1.2%, but it should soon trade in its charge for change in for panic too. In France, where Francois Hollande was celebrating victory and declaring the end of austerity, the iShares MSCI France Index (NYSE: EWQ) might offer a similar decline to its 1.6% Friday fall. Unless, that is, investors believe Europe will stick together, but at the same time look towards the sort of creative growth initiatives I’ve been calling for from the start.

I anticipate a deep and dark red day Monday for U.S. investors as well without a certain reassurance from Germany. The American stock market tends to shy away from uncertainty, let alone chaos, sort of like the 1.4% decline in the Dow Jones Industrial Average implied last week (SPDR Dow Industrials (NYSE: DIA) down 1.3%). Given that the probability of a Greek default has suddenly increased for those wearing blinders, and that the European plan could fall apart as swiftly as life in Greece has, you can bet on increased volatility in equities and a favoring of sell orders over the near-term. I reiterate, this should play out unless Europe can keep the funds flowing while easing on austerity. This will be the key, and we’ll look to Germany to see if a door is opened.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

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.

Enter Political Risk

Many in the media are attributing nascent softness in European and also American shares to whatever happens to be in the news that day or this week. While many of these issues are certainly important to the market, like for instance the latest Spanish bond sale or the European recession foreseen here for months now, there’s a major issue that short-sightedness has not allowed into perspective. Political risk is increasingly entering the frame, and it threatens to change the game for Europe, the United States and much of the world this year and beyond.

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.

Relative tickers include: Vanguard MSCI Europe ETF (NYSE: VGK), European Equity Fund (NYSE: EEA), iShares MSCI France Index (NYSE: EWQ), Global X FTSE Greece 20 ETF (NYSE: GREK), iShares MSCI Spain Index (NYSE: EWP), iShares MSCI Germany Index (NYSE: EWG), iShares MSCI Italy Index (NYSE: EWI), SPDR S&P 500 (NYSE: SPY) and SPDR Dow Jones Industrial Average (NYSE: DIA).

Political Risk of European Fascism

In times of duress, austerity stricken citizens tend to vote with more than just boisterous protesting; you know, like the now commonplace (in Greece) burning of automobiles, breaking of storefront windows and hurling of stones at your friendly neighborhood cop. While many nations have put off long awaited elections, this year, the ballots will hit the fan.

This weekend offered the first splattering in a big, bad and potentially disgusting way for investors. The French elections could break up the French-German connection lovingly known as Merkozy. French PM Nicholas Sarkozy and German Chancellor Angela Merkel have with their concerted effort led Europe through its most difficult time since the Second World War. In fact, they have very likely kept the European Union together, though in a weakened and more fragile state. It is precisely this popular opinion that threatens to unseat the French connection, with Sarkozy expected to be overcome by Socialist Francois Hollande, who this weekend scored a first round victory over the incumbent Sarkozy. The election concludes on May 6, which is shaping up to be like a sort of doomsday for Europe.

You see, on May 6, the Greeks will also very likely unseat their leadership. The choice for Europeans continues to be represented by the same old faces from the same old political parties, which are adept at dishing out whatever the people’s palette desires on any given day. For instance, in Greece today, the New Democracy Party is talking up growth initiatives over the sour tasting austerity their socialist counterparts in PASOK have been forced to serve. Yet, it was under New Democracy that Greece forged its economic data to sneak into the euro zone. I’m not sure the Greek people are as forgetful as politicians may think.

The problem is that for Greeks, and others, there are very few alternative digestible options to choose from. Still, desperation has driven many to desperate affiliation. The communists have even found some support, but Marxism has been so effectively disproven by history that they really waste national resources by their organization. It may be a good thing, though, as their existence keeps radical opposition fragmented.

Extreme right wing radical parties have been quick to spring up across Europe with common political themes, notably anti-immigration, anti-assimilation and of course, anti-austerity. So far, these fascist parties have come up against the broadly accepted wisdom of the day, which is that globalization and common civilization lead to prosperity. However, I have to question how much longer such anchors will hold against the storm of economic recession (depression for some) that is tormenting Europeans.

More than 50% of Greece’s young adults are unemployed and tired of the old guard, which is represented for them by both of the popular parties. Youth unemployment is a common theme running across Europe, and if the young are inspired enough to assault policemen, then they’re inspired enough to vote. In France, the extreme right wing candidate Marine Le Pen received 18% of the popular vote this weekend, vividly illustrating the new found favor of fascism throughout the region. However, for France, full-blooded fascism cannot take comfort hold of the nation, due to its large immigration driven Islamic minority. Still, the fascist voice is now needed by both major parties to overcome the other, and so Madame Le Pen garners leverage which she may use to insidiously gain more power.

Those voices which would smother this argument and the threat of fascism with the usual description of the disjointed membership of the “far right,” which includes various extremists, anarchists, racists and religious conservatives, would miss the critical point. What unites these varied groups is dissatisfaction with the ruling parties, and that is a rapidly increasing commonly shared disgust throughout the streets of Europe. It will only take further strife, which is expected here, combined with sensible sounding figure heads atop these parties to drive radical change in Europe, and that is not a farfetched or distant possibility.

For now, the seemingly smartest voices continue to support the policies of the established parties. The problem is that the comfort of their seats has made these politicians too complacent. They are so sure of themselves and the ways of today, that they are likely to be overrun like deaf blind men standing before a herd of charging elephants. They are unable to clearly see that the usual lunch meetings with the usual experts providing the usual economic advice will not suffice these dynamic times.

What fascism will likely bring to Europe and eventually the world will be an undoing of civilization. The progress of the world since World War II could be undone in a decade. The European Union may hold in some form for the sake of mutual protection against the dark shadows that lurk to the east, but despite its similarly sensible economic reasoning, the euro zone would likely disintegrate.

The polar opposite direction, which I should discuss separately, could lead desperate European leaders to strike a stronger political union while they still can. Combining in such a manner, however it may make sense to the desperate, should also support the growth of the region’s cancer across now somewhat healthy states. I expect that such a unionization effort would tie the region, and drown the entire group together. That’s because I expect the European Central Bank (ECB) would then get its hands dirty, and the excessive creation of fiat currency combined with other factors I see developing geopolitically, could undo the West and the financial system entirely, and perhaps global trade as well. I will write more about this truly undesirable possibility in a dedicated article soon enough.

While economic data pointing to decline across Europe is definitely playing a key role in the day’s activity, it should have been expected by readers of my column. You read others to know what is going on today, and you read me to know what will happen tomorrow.

Today or not long from now, the realization that the people may not stand much longer behind ruling regimes, and with sloppy fascism clawing at the door, will drive concern about civilization and spread chaos across securities markets. At the hour of scribbling here, the Vanguard MSCI Europe ETF (NYSE: VGK) and the European Equity Fund (NYSE: EEA) were each down between 2% and 3%. For the nation in the news, the iShares MSCI France Index (NYSE: EWQ) was down more than 3%. The Global X FTSE Greece 20 ETF (NYSE: GREK) was off 2.6% and the iShares MSCI Spain Index (NYSE: EWP) was lower 3.2%, as bond spreads widened across Europe. The levity of the matter is even more apparent as we view the 3.6% drop in the iShares MSCI Germany Index (NYSE: EWG) and the 3.9% collapse of the iShares MSCI Italy Index (NYSE: EWI). In my opinion, well-founded contagion concerns have the SPDR S&P 500 (NYSE: SPY) and the SPDR Dow Jones Industrial Average (NYSE: DIA) lower more than 1%.

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.