The Rain in Spain

The news releases from the United States were not positive as jobless claims continue to rise along with leading economic indicators and consumer sentiment surveys dropping. 

The big news in Europe is Spain’s deputy prime minister Soraya Saenz de Santamaria is flying to Washington to meet with Tim Geithner and IMF director Lagarde.  While Largarde has recently taken a harsh stance with troubled Euro countries, the near-term outcome does not look promising for IMF aid very soon.  While I expect the IMF will be involved before the Euro crisis is over, the political debate between countries for an increased role in the IMF and world affairs will move to the front and center.  Emerging countries appear to have the financial strength versus developed countries to be able to contribute. 

While Bank of Italy’s governor Ignazio appear to be stating the obvious that investors now doubting cohesion about European governance and the ability to ensure the survival of  the Euro, Italian prime minister Monti warned of a backlash against fiscal and structural discipline.

In Spain, banks are stuck with an estimated $184 billion Euros of bad property debt and the government just provided Bankia another $23 billion and most investors believe the bank is now nationalized.  Look for the ECB and Europe’s political leaders to announce or talk about using the European Stability Mechanism (ESM) to provide liquidity to Spanish banks.  After all, it is reported that $65 billion of withdrawals have occurred as Spanish citizens start to doubt the banking system.

An update on UUP.  Since the low on April 30^th, the Dollar bullish fund has gained 5.6% while the S&P 500 has declined by roughly 6%.