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Germans cop what they deserve

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by Peter Switzer

The unmoveable Germans have been given a rocket up their butts with the unthinkable happening — the bond vigilantes are now turning on them — with the bond yields even rising for them. Sure they are guilty by association but they should carry some of the bond load as they have been standing in the way of the European Central Bank adding to liquidity and forcing down bond yields.

I said it yesterday that “no news is bad news” and I always thought we had to see something that forced the Germans to face the facts that there were only two ways out.

First, do nothing and get what you have now or second, do a Ben Bernanke and let the money supply increase, support the troubled governments and ease bond market fears.

‘Do nothing’ option

The ‘do nothing’ option has forced the Dow down 236.17 points, or 2.05 per cent, to 11,257.55, while the S&P 500 has broken its support level of 1280, which I referred to yesterday. Once these get broken, the usual path is with the trend and that is down, baby, down!

If something isn’t done, the euro could be dead currency limping. The Germans were looking to sell six billion euros worth of 10-year bonds but they could only flog 60 per cent to an increasingly hesitant market.

“No bonds wanted equals no euros wanted equals the euro death watch,” wrote Mark Steele, an analyst with BMO Capital Markets. “We have seen many poor German auctions. This is not the issue. The issue is how badly the euro is doing after the weak auction.” (CNBC)

The irony is that Germany has been afraid of the Fed’s buy-the-debt-and-increase-the-money-supply option because it feared inflation but with its pigheaded stance, it's sowing the seeds of recession, the end of the euro and even a Great Depression!

US data

Not helping Wall Street overnight were durable goods orders, which were weaker than expected, however the Thomson Reuters/University of Michigan consumer sentiment rose from 60.9 in October to 64.1 in November.

Also, a weak China manufacturing report didn’t help matters and with Thanksgiving coming up tomorrow, it was another reason for US traders to cut their positions.

I would like to argue that other things matter but they don’t. The current market malaise is now down to Europe’s stupidity, procrastination, its unwieldy EU structure, its lax budget policies and its poor leadership.

And the second-rate leadership continues today and that’s why our wealth is being consumed on an all-too-frequent basis.

I don’t easily play the negative, nervous Nellie game but it is time for the Europeans to heed the advice of US Treasury Secretary Tim Geithner, who told the EU months ago — it’s time for “some shock and awe”!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Thursday, November 24, 2011

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