The fiscal cliff beckons and, as previously predicted, a resolution is unlikely. So let’s ignore the cliff this week and consider what’s happening elsewhere.
Viva Europe!
Last week was a good week for Europe – at least in comparison to most weeks.
The Eurozone is in a recession; unemployment continues to rise, and both industrial production and retail sales have dropped even further than had been predicted.
So where’s the good news? Well, for starters, European leaders were given the Nobel Peace Prize. While we’re not sure what the sovereign debt crisis has to do with war and peace, at least Europe is not the Middle East. In what other continent do neighboring countries lend billions of dollars to each other when they have no hope of ever getting it back?
In addition, the European Union reached two agreements this week:
- The 27 EU countries agreed to give the European Central Bank (ECB) oversight of their banks
- They also agreed to provide Greece with an additional $64 billion in bailout funds
The ECB has not always shown sound judgment and the wisdom of pouring more money into the Greek sinkhole remains to be seen. But the Greek funding will at least stall a default, which could potentially bring down the currency union, and the banking agreement should at least expedite decision making.
Whether the new agreements will help solve the crisis or prolong the pain remains to be seen, but at least the European Union negotiated and reached compromises. That’s more than can be said for President Obama and the U.S. Congress.
Volatility: Europe vs. the U.S.
The inability to compromise is affecting the volatility of U.S. markets.
This week, for the first time this year, Europe’s volatility index (VIX) dropped below the U.S. VIX (16.6% vs. 16.8%). In addition, Europe’s Euro Stoxx 50, the European equivalent of the Dow Jones Industrial Average, is easily outperforming the DJIA, with a year-to-date return of +13.5% vs. +7.75%.
Zero Hedge reported, “Are we seeing a wholesale capital outflow beginning as US’ Fiscal Cliff fears trump any year-end shenanigans potentially coming from Europe (post-Summit)? One thing is for sure, certain media individuals will have to change their tune now Europe is the year’s winner and the US becomes the center of the world’s event risk focus.”
High-Frequency Trading Is “Predatory”
Credit Suisse’s trading strategy team released a report this week called, “High Frequency Trading – Measurement, Detection and Response,” in which the firm said, as Zero Hedge put it, “that high frequency trading is a predatory system which abuses market structure and topology, which virtually constantly engages in such abusive trading practices as the Nanex-branded quote stuffing, as well as layering, spoofing, order book fading, and, last but not least, momentum ignition.”
Get Your Food Stamps!
With unemployment figures and the housing market improving, the U.S. economy is on the upswing, right? If that’s the case, why are a record number of Americans receiving food stamps?
According to the U.S.D.A., a record 47.7 million Americans are now living in poverty. In September, a record 607,544 Americans became eligible for food stamps.
Imagine if we were in a recession!
