Europe's Big Deal

October 30, 2011
	This week's briefing has a fresh look and can be found in The Briefing Room. Our approach to taking positions during a new up cycle, is to buy a position and if that trade is working out, buy again a little higher, maybe again higher and sell as close as possible to the high.   Don has done a wonderful job in this briefing to help you understand how we have worked with your portfolio during this last up cycle.  It is worth your time to get to know how these briefings work.  Once you are familiar with the format, you can quickly glance each week and maintain a comfort level that your funds are being professionally managed on a daily basis. Europe's Big Deal Don just mentioned that Bernie's family was on 60 Minutes tonight.  I thought this was a perfect cartoon that I've been keeping in my archives, because it ties into the Europe deal perfectly.  How you may ask?  Well, the European bailout fund which is a little over $100 Billion Euros after the guarantees already promised, is now going to be about $1 Trillion (yes, that is the equivalent to 10 cigarettes for 1).  How?  Well, no one has really said.  Maybe we should ask Bernie.  So far the Euro Fed has said it WON'T print money.  It will be interesting to see where it comes from.  Unfortunately 1 Trillion is only about half of what the most conservative estimates say they will initially need. I would love to stop talking about Europe every week, but it is moving our markets so dramatically, I just can't quit.  Everyone who reads this weekly brief knows that I am a fervent John Mauldin reader.  I am so unimpressed reading most financial news because so much of it spews the same wall street hype.  I prefer to go behind the scenes to look  at what is CAUSING the hype.  John knows most of the insiders and doesn't fit in the wall street box.  Just my kind of guy. I'm going to give you a very brief review of his lengthy eLetter that came today.  It goes behind the scenes to help us understand why the market had such a huge reaction to this European deal and why it may not be a long lasting reaction.  First: Germany is only playing on one condition.  The ECB (Euro Fed) doesn't print any extra money.  They strictly remember Weimar. Second: Pretty much everyone else is telling the ECB to do the right thing. . . PRINT MORE MONEY!! Third:  Everyone agreed to write off 50% of what Greece owes them.  This, by itself, was a large cause for our market to shoot up.  If everyone writes it off rather than having Greece default, then no one needs insurance (CDS's)  for the possible default.  Since this isn't needed then all the short positions supporting them need to be bought back and Voila!  Many institutions are putting in buy orders immediately and the market shoots up. Fourth:  The trillion dollars that is going to mysteriously appear in the Bailout Fund will be used to fund 20% of new bonds issued by needy Countries.  This has been done before and doesn't accomplish anything meaningful.  The market simply looks at it now as an 80% bond and changes the interest and rating slightly. And everyone knows 20% is a drop in the bucket when it comes to Countries defaulting.  Much more is needed if you want to make an impact. Fifth:  Portugal is in steep decline.  Money is drying up (no one investing there) just like it did for Greece.  M1, which is watched by the experts to tell what will happen in the next 6 months, has fallen at an annualized rate of 21% in the last 6 months alone!  With it comes another banking crisis. Sixth:  Ireland has been waiting for the Euro Zone to make their first deal, so they can begin to get a deal also.  They owe more than they can pay and have been waiting for a precedent to be set.  Much pressure is on their new Prime Minister to relieve pressure on their tax payers and  place it upon the taxpayers of all of Europe. Seventh:  Part of the deal was to have banks raise their capital up to 9%.  Unfortunately Dexia was at 12% just before they went bankrupt.  Italy and Spain, whose banks are basically broke already, will need help.  Why should their individual Countries do this when everyone else is getting bailed out? This entire European Crisis is being treated as a lack of the market having faith in the system.  In all reality, it is a problem of too much debt in Greece, Ireland and Portugal and Spain and Italy and yes, France.  There will come a time when the markets figure out this deal is simply lipstick stuck on a pig.  The pig might look a little better, but it is still a pig.  Nothing has been solved and fear will return.  What will YOUR money be doing when this occurs? Sorry for the lengthy report, but I believe it is an important one.  Please go to the briefing room and enjoy the fresh layout and approach.  Don has done such a wonderful job calling the markets in this room.  As I mentioned, spend a little time to familiarize yourself with it.  You'll be glad you did. Have a great day!! John Norquay CEO PivotPoint Advisors		In order to view the graphs and charts in our newsletter, please click the link at the top of your email to "always show images from PivotPoint Advisors" Resources Check out our Youtube Channel  Like our FaceBook FAN Page We manage money inside 401k plans. Know anyone who may want to use us? Click "Forward to a friend" (immediately below) to share this newsletter with friends you think may appreciate our services. Forward to a Friend Twitter Subscribe to the Weekly Briefing Report Unsubscribe Update Subscription Preferences View Email In Browser