Looks like it's risk-on today as European investors cheer the news that Merkel and Sarkozy are meeting to discuss a plan for stability in the EU (didn't we just go through this same thing 2-3 weeks ago??) EU leaders are considering a plan that would bring stricter budgets to each of the countries in the EU (read: austerity measures), leveraging of the EFSF (European Financial Stability Facility) to a maximum of 1 trillion Euro of first loss guarantees on sovereign debt and an IMF (International Monetary Fund) bailout of b/w $100 - 200B Euro. While I believe it's good that they are starting to actually look at measures to stop the contagion, I have a couple of reservations, in particular with the IMF bailout. For one, the US comprises 20% of the IMF's budget, and I think politically, it would be very difficult to go along with a bailout of Europe when we still have persistently high unemployment (albeit somewhat improving) and although we have some economic growth, it doesn't necessarily "feel" like we are in a growing economy.
Day 4 of my rally into the year-end thesis: We currently have a backdrop of improving retail sales (3-4%), modestly improving employment picture, and an uptick in consumer sentiment. Institutional investors are still weary and are on average 60-70% in equities, so they are desperate to move the needle higher before December 31st, a typically strong month for stocks. Offsetting these positives that are earnings at a cyclical peak, negative income numbers, weak volume on rallies, a dysfunctional government, and an ongoing global deleveraging, but I think these bearish points will take a back seat until next year....
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