Stocks bounce back after 3 day drop

     Stocks rose more than 250 points today in as the German constitutional court paved the way for Germany to participate in the bailout and speculation that the Obama administration is planning a 300 billion jobs and stimulis package.

     "President Barack Obama plans to propose sparking job growth by injecting more than $300 billion into the economy next year, mostly through tax cuts, infrastructure spending and direct aid to state and local governments," according to Bloomberg.

MY TAKE

      Markets are rallying on hope, because in this divided hyper partisan political environment, President Obama's jobs package is doomed to fail. 

     Stocks surged and recent safe havens like gold, treasury bonds and the dollar fell.

     European stocks advanced strongly with the German DAX up 4.0% and the London FTSE up 3.1%.  Buyers stepped in today on the removal of one impediment to Germany's participation in the European Financial Stability Facility or EFSF.

     George Soros says the European debt crisis has the potential to be worse than the 2008 financial crisis that roiled markets worldwide.  He says the problem is Europeans have no central authority to make decisions in a time of crisis.

      “That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

MY TAKE
       There is no policy coordination in Europe to tackle the problems and no political will to truly solve the problems.  This is why I am so bearish on Europe.  Germany is the linchpin to the bailout and their people don't want anything to do with bailouts which makes solving the debt crisis almost impossible.  Merkel is going to lose the elections and Germany is going to drop out of the bailout.  Then all hell is going to break loose.

STOCKS
     Gold- Gold is down 4% today on who knows what.  Its probably a bear raid, gold looks like a double top formation which could add downward pressure in the near term.  I expect all dips to be bought however.

   

     ZeroHedge speculates that central banks are intervening to stem the rise in gold prices.

    "With further gains for the Swiss franc artificially capped (at least in the short term), it would be naïve to exclude the possibility of intervention in the gold market and a continuing strategic capping of the price."

MY TAKE

     This is the danger with gold.  The gold price rising is basically giving the finger to central banks and policy makers.  They hate gold and will do anything to stem its rise, including intervention. 

     Apple-  AAPL is underperforming today in a great tape.  AAPL is up less than 1% with only half the gains of the broader market.  AAPL is still looking like a defensive play after yesterday's price action when it went up 1.5% when the broader market sold off.

The SNB drops a bomb

     The Swiss National Bank dropped a bomb on the currency markets today.   They unilaterally decided to peg their currencies value to 1.2x that of the euro by buying "unlimited" amounts of other currencies.

     "The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities," said the Swiss National Bank in a statement.

    The Swiss franc had been rallying recently on it's safe haven status as it is one of the few currencies backed by gold.  However, the franc's rise was killing the Swiss economy as it made their products more expensive abroad. 

     "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development."

     The Swiss franc immediately dropped 8% on the news.  Here is a chart of the swiss currency.

                  As you can see, the franc dropped from 126 yesterday to 116 today falling 8.5%.

     This illustrates the "race to the bottom" for currencies when central banks try to interfere in markets to devaluate their countries currency.  Every country wants an export edge and so wants their currency weaker so they can sell more products abroad and strengthen their economy.  This is why Germany likes being in the Euro.  The Euro is artificially weak because of weaker peripheral economies and this aids Germany's exports.  This weak Euro has helped turn the German economy into an export powerhouse.  Same with Japan.  Japan needs a weak yen to make their products more appealing abroad.  Look for the Japanese to do something similar to the Swiss in the near future as their currency has climbed a lot due to its safe haven status as well.  

     With everyone racing to weaken their currency, it makes more sense than ever to hold some gold.  Paper is getting less and less valuable and central banks can't print Gold.  The Swiss franc is no longer a safe haven in these dramatic times so I am looking for gold to go higher, perhaps much higher.  

     With no internet today, I was unable to watch the markets today.  However from looking at the charts, today's action was quite bullish for the near term.  We opened down big and fell to almost 300 pts down on the DJIA but rallied back throughout the rest of the day finishing down only 100 pts.    

     

     Gold, after hitting an all time high at 1923 in overnight trading had a huge reversal finishing around 1870.  This makes little sense to me as the elimination of the safe haven status of the Swiss franc should have increased the appeal of something like Gold.  I will have to investigate the reasons for this action further.  

      Needless to say, I made no moves today with my internet being on the fritz.  I am still long Gold and plan to stay that way.  AAPL looked real strong today in a weak tape finishing up 1.5%.  If this market keeps rallying, I will buy some of my AAPL back.  

     Tomorrow we get big news out of Germany where the courts there are ruling on the legality of the German participation in the European Financial Stability Facility or EFSF for short.  It's likely that the court rules that German participation is legal because if they don't all hell is going to break loose.  This should be a big market mover one way or another.