Euro Fears Still Making Markets Shaky

As today's post title suggests, trading continues to focus on events - or the relative lack thereof - in Europe, where today French President Nicolas Zarkozy met with German Chancellor Angela Merkel, announcing some coordination of efforts, but fell short of endorsing the concept of Eurobonds to shore up shaky finances on the Continent.

"We want to express our absolute will to defend the euro and assume Germany and France's particular responsibilities in Europe," said Sarkozy.

In what has to be the most humorous statement to date concerning sovereign fiscal policies, the two leaders said they would push for balanced budget amendments for all 17 nations which use the Euro as their primary currency. The irony is that, excepting possibly Germany, none of the member nations have had a balanced budget in at least five years, most of them running continuous deficits since the Euro became the continental currency in 2000.

The specific proposals coming from the leaders of the two most powerful members of the Europen Union were slim. They said their finance ministers would meet four times a year and proposed that the member nations coordinate income tax policy and begin taxing financial transactions by 2013, kicking the proverbial can a bit further down the road to perdition.

By the time the two leaders met with the press, European markets had already closed, so the brunt of the effect from their statements was felt primarily in the US.

Stocks took a nose dive after the press conference, and fell to their lowest levels of the day just after 1:00 pm EDT. The Dow was off by 190 points at its bottom.

But, as usual, the mechanics of controlled markets took over, as all the major indices rallied for the final three hours, still closing down for the day, but with reasonable losses.

Stocks had gotten off to a shaky start, after economic data was mixed prior to the opening bell. July housing starts fell off to 604,000 on an annualized rate, after posting a figure of 613,000 in June. Building permits dropped by 20,000 from the annualized rate of 617,000 in June.

However, industrial production came in with a better-than-expected gain of 0.9% and capacity utilization also showed a bit of strength, with a reading of 77.5%, following a 76.9 figure in June. Of course, these are estimates prepared by an inept and failing government and should not be trusted as any true guide to financial conditions in the United States, even though they remain mired in the minds of traders and fund managers as the most reliable gauges.

Without any determinant structure of reform or policy coming from Europe, expect this see-saw battle of bulls and bears to rage on for weeks until something concrete cracks across the pond. There seems to be about the same level of political will over there as there is in the US to entertain policies that actually address structural issues in the economy - none - as the leaders on both sides of the Atlantic are easily more enthusiastic about getting re-elected than they are at doing their jobs well.

With the majority of the politicians on vacation this month (the NY Times reports that 80 members of the house of representatives have or will be visiting Israel this month) our political class appears quite cavalier when called on to solve pressing problems.

Until there is real political leadership (in other words, we better hope we make it to November, 2012 and then elect Ron Paul as our next president) markets will continue to stumble along and economies will continue to run up debt and deteriorate.

That's how it goes. Prepare.

Dow 11,405.93, -76.97 (0.67%)
NASDAQ 2,523.45, -31.75 (1.24%)
S&P 500 1,192.76, -11.73 (0.97%)
NYSE Composite 7,394.49, -88.22 (1.18%)

Declining issues got the better of advancers on the day, 4939-1664. On the NASDAQ, there were six (6) new highs, but 51 new lows. The NYSE showed 10 new highs and 15 new lows, keeping the bias to the downside, with the combined figure of 16 new highs and 66 new lows. Expect the gap between the few new highs and increasing new lows to expand as the crisis nobody wants to handle grows even deeper.

Volume was moderate, which, after the events of last week, shows a general lack of interest overall in staking out any new, long term positions.

NASDAQ Volume 2,085,979,250
NYSE Volume 5,009,345,000

Oil closed down $1.23, to $86.65, though gas prices at filling stations across the country have seen hardly any price decline at all.

The continued unease over macro-economic issues produced a renewed push into gold, which traded higher by $27.00, to $1,785.00, a new closing record, while silver also gained, finishing up 51 cents, at $39.82, though it traded above $40/ounce both earlier in the day and after equity markets had closed.

Tomorrow brings PPI numbers for July, the Mortgage Bankers Association Mortgage Index and a reading on crude oil inventories. Other than that, bonds look very good, as they continue to hold near low levels, but remain one of the primary safety plays.