European problems still come down to Italy and Spain

While we’ve been discussing the extent of another restructuring of Greek debt and how the EU will deal with the collateral damage to its banking system, the real goal of a resolution in Europe is to keep the debt crisis from further inflaming Spain and Italy. But, because of the nature and large size of both of their economies, their destiny is in their own hands if they choose to seize it. Italy’s 10 yr bond yield is rising to 5.80%, a 10 week high after they sold 6.2b euros of debt with various maturities stretching out as far as 2025, below the 6.5b euros hoped for. It comes right before Berlusconi’s political fate may be sealed tomorrow in a confidence vote. Mario Draghi, the soon to be Italian head of the ECB, who continues to buy Italian debt, has put Italy on notice that the deficit cutting plan they recently enacted is not big enough. In Asia, China reported less than expected export and import growth. Due to the nature of their economy, many imports are in turn built into future exports. Specifically, export growth to their largest trading partner, Europe, rose 9.8%, down sharply from a 22.3% rise in Aug. Stocks in Shanghai did rise though after initiatives announced to help small and medium sized businesses that are losing access to credit. The Hang Seng rose too and is up 15% in 6 trading days. For the 2nd day in 3, the yuan fell sharply in the face of US Congressional desires to punish China’s currency policy, ignoring what our Federal Reserve has done to the US$ for many, many years. Australia reported Sept job gains twice expectations. AAII: Bulls 39.8 v 35.2 Bears 36.4 v 45.7

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