Ad Hoc Commentary – Is 1905 a bear trap?
“…The European Commission is reportedly threatening to use new powers to reject France’s 2015 budget for missing deficit-reduction targets. It would be the first use of the commission’s authority to police national budgets, granted last year to allow it to forestall a repeat of the eurozone debt crisis…”
We started the year stating that Feng Shui masters predict that it will be a tough year for the Franco-German core:
“…Merkel and Hollande are both born in the year of the Horse, 1954. That sits well with our prediction that the European sovereign debt crisis had returned to Europe to target the Franco-German core. Is history repeating itself again now with the Greeks giving France and Germany the Trojan horse of sovereign debt crisis?”
We know that Jean Claude Juncker, the European Commission president, had largely curbed the power of Pierre Moscovici, the Frenchman that is currently serving as European Economics Commissioner, and previously as French finance minister. Last month, Mr Juncker decided that budgets ‘shall be prepared and submitted’ by Pierre Moscovici ‘jointly’ with Valdis Dombrovskis, a deficit hawk from Latvia. Those who love austerity probably had been cheering Juncker’s decision, just as they probably cheered when Germany’s Mats Hummels put an end to France’s 2014 World Cup dreams during the quarter-finals.
Yours truly had mentioned many times that austerity is not going to cut it. As we mentioned previously, if they really love Europe, they should develop the infrastructure asset class that we had been talking about. There is simply no way the current debt is going to be repaid. Since foreigners holds over 60% of the Franco-German sovereign bonds, there is likely a fear of rousing the sovereign bond leviathan. Perhaps that is why, the Franco-German core, after showing so much solidarity in fixing PIIGS, is seemingly divided into a good-cop-bad-cop showmanship. Perhaps deep down they both fear the bond leviathan.
Geopolitically, it does not look good for Europe either. We are fast hurtling into the colder months, and Russia’s gas weapon is getting ever stronger. Yours truly wonder what the master strategist Putin is going to do in response to attempts to cut Russia out of the international payment systems:
“…’SWIFT and its stakeholders have received calls to disconnect institutions and entire countries from its network -– most recently Israel and Russia,’ the Belgium-based Society for Worldwide Interbank Financial Telecommunication said today in a statement on its website. ‘SWIFT will not make unilateral decisions to disconnect institutions from its network as a result of political pressure,’ according to the statement…”
“…The U.K. floated the idea of blocking Russian access to SWIFT, the messaging system for most international money transfers, in the run-up to an Aug. 30 European Union summit at which leaders paved the way for tougher EU economic penalties against Russia. The SWIFT idea wasn’t considered at the time, according to two European officials…”
Back to our S&P500, the market cracked through the 100dma overnight, and is setting its sights on our target of 1905, i.e. the 200dma. Perhaps 1905 is the bear trap, and they would be singing Shona Laing’s 1905 song:
I’ve invented a game
that I can’t win
Oh why did I ever begin
I’m not a sore loser
But when I think of
why I’m losing I cry
Oh time, time, time
Good luck in the markets.