Now that the key to success for maneuvering thru the markets is being able to successfully parse the words of politicians and central bankers instead of analyzing the economy and a company’s fundamental prospects lets look at what was said over the past few days in Europe. Merkel seems to be finally coming around to the reality of a Greek default and is now focusing her mind to how to deal with the fallout. She said “I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks,” an expanded EFSF puts them “in a position to react,” “we have to put up a barrier,” “so we can in fact let a state go insolvent.” On the possibility of leveraging the EFSF to a greater size, another German official sees no need for it beyond its soon to be new size. European officials seem to be finally coalescing around a Greek default but with so many cooks in the kitchen, the pace of decision making is unfortunately glacial. From the ECB, Nowotny said “the ECB never pre-commits, and rate cuts cannot be excluded.” Another ECB official said a rate cut will be discussed next week but is not on the agenda. What is will be possibly restarting their purchases of covered bonds and reintroducing a 12 month loan facility. Germany’s Sept IFO business confidence figure fell to the lowest since June ’10 but was 1 pt better than expected. Italian consumer confidence was in line with estimates but at the weakest since July ’08.
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