Friday, October 21, 2011

Thursday Thoughts

Run, don't waklk, to read Jeff Matthews’, comments on Apple's slowing store sales.

Most market participants are now, to use a poker term, "on tilt." The term means to be in a state of confusion.

The one question that every bear should ask as we go into "the most important weekend" is this: Has the market discounted the negatives that appear to be relatively well understood?

In the fullness of time, the eurozone will come to some sort of solution to paper over its debt problems. In all likelihood, the solution will be weak-kneed, lacking with power of resolution.

After the 'resolution' of the European crisis, we have to address the downside implications for that region's economic growth rate. Toward that end, last night Germany reduced its GDP forecast for 2012 to +1.0% from a previous projection of +1.8%. I would expect further revisions lower in the country’s growth outlook in the months ahead.

With Germany being the "best house in a bad neighborhood," one can only envision how weak the European region's aggregate growth rate will be in 2012-2014.

It is clear European demand has meaningfully weakened. As an example, AXP discussed in last night's conference call that European billed business softened throughout the quarter (and that October's trend worsened).

Europe is in a recession, and the only question is how deep -- that is where the next debate will unfold.

I believe this will help to explain why an Oct. 23 eurozone agreement will be met with a muted response.