All is well this morning as yesterday's array of bad news only dented markets for a few hours before buyers came in to mitigate losses. Lines are forming country wide for iPhones and bailout terms are being prepared for Spain across the pond, so it appears to be business as usual. The FT has reported that an economic reform plan looks set to be unveiled soon, which would then lead to the formal request for aid from Spain, which would prompt the ECB to embark on its bond buying program (along with the European Rescue Fund)…. i.e. firewall.
- Spain could be poised to announce an economic reform plan next week, the Financial Times reported Friday. Citing officials involved in the talks, the FT said European Union authorities are working with the Spanish government to come up with a plan to pave the way for a new rescue plan and unlimited bond buying by the European Central Bank.
- Those officials said talks between Spain and the EU are focusing on conditions demanded by international lenders as part of a new rescue plan, which would need to be in place before any rescue plan was announced. One senior European official said negotiations have been taking place with Spanish Finance Minister Luis de Guindos, and talks are surrounding structural reforms to the economy, but not new taxes or cuts.
- Next Friday, the Spanish government is expected to announce results of a review of its banking system, which will also include how much the European Stability Mechanism needs to recapitalize those banks.
If you happen to be Spanish or are curious of the potential details of these reforms, Reuters has an in depth look at the potential reforms, which seem to focus heavily on the pension system.
- The accelerated raising of the retirement age to 67 from 65, currently scheduled to take place over 15 years, is a done deal, the sources said. The elimination of an inflation-linked annual pension hike is still being considered.
With all the bad news thrown at the market yesterday, and the ability to shake it all off one has to wonder what catalyst can actually bring down the market at this point. Even earnings warnings thus far have not mattered. We do have a particularly strange situation where transports are not only not confirming the move in the major indexes (Dow Theorists will be up in arms) but are in a major tailspin. Not a surprise considering trucking stocks and the FedEx/UPS complex has been weak all along, but yesterday the railroads took a huge blow with the NSC warning. So we're definitely missing a key sector, and one that would indicate global economic health – but the indexes are holding in with the rotation into other areas.
So the stair step approach continues in the indexes – spike, sideways/consolidate, spike. Avoiding the big blowups during the sideways/consolidate period is the key for now. It appears the market is in "climb wall of worry" mode until further notice.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog