Friday, December 9, 2011

With rumors abounding, let's get the view of Peter Boockvar, who summarizes the conflicting headlines in Europe:

CNBC and DJ are reporting that EU members have agreed to proposals that have been discussed for weeks, 1)The creation of a fiscal compact that will likely encompass an EC commission that will stand as an oversight of EU budgets and a Court that will be the enforcer, 2)The ESM fully in place by July 2012 that will stand side by side with the EFSF instead of replacing it, 3)EU to follow IMF protocol on private sector involvement in debt restructurings which means voluntary debt exchanges instead of forced, and 4)Euro area central banks will likely provide the IMF with bilateral loans (which then get recycled into loans back to Europe). On the ESM, some want it to be considered a bank and thus be able to access ECB funding but the Germans seem to be dead set against it. With respect to the markets, while the possibility of an agreement was always uncertain, Merkel and Sarkozy shook hands on all of these proposals on Monday so today was just convincing the others in the region. It was the ECB response to the EU summit that markets were looking to and Draghi told us what he thought today. Now will Draghi change his mind next week and say he liked the draft and maybe instead of buying 5-10b euros a week of sovereign debt, he'll buy 10-20b and sterilize (because he doesn't seem to want to print right now)? Maybe or maybe not. Bottom line, the market has become completely untradeable with all that is going on in Europe.

Price is what you pay, value is what you get.

MSFT - Special dividend announcement? Enlarged buyback?

Eurozone banks have to raise about $150 billion in new capital, according to a report.

Bloomberg is reporting that the European Banking Authority has stated that the eurozone banks have to raise about $150 billion in new capital, which is in line with expectations.

Is Draghi a poor communicator? Yes.

Will the eurozone's debt contagion be contained through more aggressive policy? Yes.

The ECB is very slowly moving in the right direction. (Even the bond-buying program will ultimately be increased in size as austerity measures are adopted and as fiscal integration is advanced.)