The amazing dichotomy in Europe

The amazing dichotomy in Europe is on full display today as yields continue to rise to alarming levels for Ireland, Greece, Portugal and Spain while at the same time Germany’s IFO business confidence figure for Nov rose to a record high dating back to its beginning in 1991. The bottom line for the sovereign troubles in Europe is that it has to end before it hits Spain and it’s why Spain MUST seize this moment in time to build a firewall around both its banks and sovereign finances because they are to big to bail and Germany is in no mood to continue to have its taxpayers bail out the bondholders of troubled banks and countries. Unfortunately though, German banks are large holders of these bonds. Not surprisingly, S&P downgraded Ireland’s credit rating by 2 notches to A with a negative outlook. Kim Jong Il’s short on the Kospi didn’t work out that well as it only fell .2% thus proving that the US selloff was more due to European concerns.

Notwithstanding the pullback in markets, bullishness on the US market remained very elevated albeit a touch less so as measured by Investors Intelligence. II said Bulls fell to 55.7 from 56.2 (was highest since Dec ’07) while Bears rose to 21.6 from 20.2. ABC confidence remained unchanged at -47. The MBA said purchase applications for the week ended Friday spiked 14.4% to the highest since May even as mortgage rates rose to an average of 4.5%, an 11 week high. Maybe there was some fence sitter effect. Refi’s however fell 1% to the lowest since June.

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