Chart: 10y EFSF-German Bund Yield Spread; Moody's Affirms EFSF Aaa Rating, Stable Outlook

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Moody's Investors Service "affirmed its provisional (P)Aaa long-term debt rating with a continued stable outlook for the debt issuance programme of the European Financial Stability Facility (EFSF)." It mentioned that it downgraded and lowered its outlook on Euro nations that are part of the EFSF's "guarantor pool" (France has 21.8%, Italy 19.2%, Spain 12.7%, and Austria 3%). Germany guarantees 29% of the fund. I found a Thomson Reuters chart (as of 2/14/2012) of the EFSF 10-year yield - German Bund yield spread and the 10y France -German Bund yield spread. The chart is here.

Source: Thomson Reuters Datastream

Moody's Lowers Outlook on UK, France; Downgrades Italy, Spain, Portugal; EUR/USD Hit

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I know European sovereign debt downgrades are pretty much priced in, but today 
Moody's downgraded and lowered its outlook on a few European nations. It downgraded Italy to A3 from A2, Malta to A3 from A2, Portugal to Ba3 from Ba2, Slovakia to A2 from A1, Slovenia to A2 from A1, and Spain to A3 from A1 (two notches). All have negative outlooks. Moody's also lowered its outlook on France, Austria and the United Kingdom to negative. All are rated Aaa, which is the highest credit rating.

EUR/USD is trading lower at 1.31533, and is close to testing 10/4/2011 support again at 1.31460. The 50DMA is at 1.2998 on the chart. Since the UK is not really in the spotlight at the moment, here is the reasoning behind Moody's negative outlook.


The primary driver underlying Moody's decision to change the outlook on the UK's Aaa rating to negative is the weaker macroeconomic environment, which will challenge the government's efforts to place its debt burden on a downward trajectory over the coming years. These challenges, reflecting the combined effect of a commodity price driven hit to real incomes, the confidence shock from the euro area and a reassessment of the lasting effects of the financial crisis on potential output, were already evident in the government's Autumn Statement. The statement announced that a further two years of austerity measures would be needed in order for the government to meet its fiscal mandate of achieving a cyclically adjusted current budget balance by the end of a rolling five-year time horizon, and to reach its target of placing net public sector debt on a declining path by fiscal year 2015-16.

Links on the Greek Austerity Vote, Protesting

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Greece Set for Crucial Vote on Austerity (WSJ)
German Leaders Maintain Pressure as Greece Debates Budget Cuts (Bloomberg)
Time Starts Running Short to Avoid a Default by Greece (WSJ)
Greece set to defy protesters and accept eurozone bailout deal (Guardian)
Live Streams From Athens And Greek Parliament (Zero Hedge)
Athens buildings burn as lawmakers weigh austerity (Reuters)
UBS Asks: Has Greece Already Been Printing 'Quasi-Drachmas'?! (Business Insider)

Blogger's New Dynamic Views Magazine Template

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Look how good Blogger's new Dynamic Magazine template looks. I just need a way to add html/java widgets to the sidebars. They have seven other dynamic versions as well. By the way, if you want to put page numbers at the bottom of your index and label pages, get the code at Abu Farhan's blog (it doesn't seem to work on date pages though).

Market Timers' McClellan and DeMark Are Cautious on the S&P

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Tom McClellan, who runs the McClellan Market Report, thinks the S&P will trade "violently sideways" for the next four months. He was featured on Bloomberg TV on 2/6/2012: McClellan Says U.S. Stocks May Trade Sideways Until June. He mentioned that the Eurodollar futures commercials COT (commitment of traders) chart from last year correlates almost perfectly with the S&P 500 today. For more info on this, read his "Chart in Focus" post from 5/27/2011: Commercial Traders Foretell Market’s Movements. The correlation correctly predicted that the S&P would peak in early June and bottom out in October. This is amazing. On 2/3/2012, before his Bloomberg appearance, McClellan released a new warning: Eurodollar COT Indication Calls For Big Stock Market Top Now.

Bernanke Warns About Fiscal Challenges, Federal Debt/GDP vs. 10-Year Treasury Yield Chart

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On February 2 and 7, Federal Reserve Chairman Ben Bernanke, in his testimony before the U.S. Senate and House Committees on the Budget, gave his outlook on the economy and warned about the U.S.'s "unsustainable deficits" and "structural fiscal imbalances". Read his statement below. I also added a chart of Gross Federal Debt/GDP from 1939-10/2011 versus the 10-year note yield from 1962-present. It is interesting that the 10-year yield peaked when Gross Federal Debt/GDP bottomed in the early 1980s, which was due to inflation. Related: Congressional Budget Office Sees Big Decline In Budget Deficit/GDP Between 2012-2022 (see their alternative scenario as well).

Link to chart at St. Louis Fed

"Fiscal Policy Challenges
In the remainder of my remarks, I would like to briefly discuss the fiscal challenges facing your Committee and the country. The federal budget deficit widened appreciably with the onset of the recent recession, and it has averaged around 9 percent of gross domestic product (GDP) over the past three fiscal years. This exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. As the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years.

Confidence Game - Film About Bear Stearns' Collapse (Trailer)

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There's another film coming out on the 2008 financial crisis. Confidence Game, a documentary film by Blue Chip Films (Nick Verbitsky), is about the collapse of investment bank Bear Stearns in March 2008. I watched the trailer and it looks similar to Inside Job. I'm not sure when it comes out. Watch it below (h/t Market Folly).

PIMCO's Bill Gross on Treasury Yields at the Zero-Bound, Deleveraging Cycle

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Bill Gross, co-founder of PIMCO and manager of the $244 billion PIMCO Total Return Fund, wrote in his February Investment Outlook ("Life - and Death Proposition") that the Fed's extended zero percent interest rate policy and short and intermediate-term Treasury yields at the zero-bound could have unintended consequences. The last paragraph pretty much sums up his growth outlook.

"Where else can one go, however? We can’t put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.

Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time."

Source: PIMCO 

Congressional Budget Office Sees Big Decline In Budget Deficit/GDP Between 2012-2022 (Slides)

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A few days ago the Congressional Budget Office (CBO) released its
budget and economic projections for the years 2012-2022 (pdf). I embedded the slides after the jump. The blog Pragmatic Capitalism has an interesting post on the release: "CBO: Budget Deficit To Drop “Markedly”, Threatens Economic Stability Stability." Under CBO's baseline scenario, unemployment falls, the budget deficit as a percentage of GDP declines, interest rates rise steadily, inflation stays under control, labor income rises to GDI (gross domestic income), net business fixed investment rises, and residential housing investment remains weak with the number of vacancies. Under their alternative scenario, however, they see the budget deficit/GDP percentage declining less than expected for a number of reasons.

Video: Flying Nano Quadrotor Robots Moving In Formation!

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This is a must see video. Watch flying "nano quadrotor" robots swarming around a room and moving in formation. They are like the robots in the movie Batteries Not Included. They were developed at the University of Pennsylvania's General Robotics, Automation, Sensing and Perception (GRASP) Laboratory. I found the video originally on Slashdot.

Watch Bloomberg TV Live

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Watch Bloomberg TV that streams live on (or specifically

Applying Fibonacci to Stock Market Patterns - Guest Post by Elliott Wave International

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Guest post by Elliott Wave International (I'm an affiliate partner as well)

Applying Fibonacci to Stock Market Patterns
It's easier than you might think!
February 1, 2012

By Elliott Wave International

Patterns are everywhere. We see them in the ebb and flow of the tide, the petals of a flower, or the shape of a seashell. If we look closely, we can see patterns in almost everything around us. The price movements of financial markets are also patterned, and Elliott wave analysis gives you the tools to interpret those patterns.

The Fibonacci sequence is vital to Elliott wave analysis -- as a matter of fact, R.N. Elliott wrote that the Fibonacci sequence provides the mathematical basis of the Wave Principle. Once you understand the Fibonacci sequence, it's easy to apply it to the markets you trade.

Watching German Bund Yields, BUNL (Bund Future ETN), EUR/USD (2/1/2012)

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German government bonds (bunds) and the euro will be interesting to watch as Greece either makes a deal with Greek bond holders to take a 70% loss to reduce its debt load by 100 billion euros, which would allow the next rescue loan from the EU (mainly Germany) and International Monetary Fund (AP), or sees a disorderly default. To make things even more interesting, the European Central Bank "is planning a second round of three-year bank loans next month (LTRO), after lending 489 billion euros ($645 billion) in December" (BusinessWeek), to add more emergency liquidity to the banking system and for banks to buy distressed sovereign debt like a carry trade. Portugal is getting hit as well. On early Monday morning, Portuguese bond yields, its spreads to German bunds, and 5-year CDS rose to new highs.

Tom DeMark mentioned last week on Bloomberg TV that German bunds were exhausted to the upside and could collapse if a signal was triggered. German bunds moved up since then (yields down), but they could be setting up again. Bund bears are fighting a strong uptrend. Egan-Jones downgraded Germany's credit rating from AA to AA- on January 18. Sean Egan, co-founder of Egan-Jones, told CNBC's Fast Money and Fox Business that they downgraded Germany because its debt/gdp ratio was rising, and it will have to "absorb the cost" of supporting other eurozone countries on the brink (Greece, Portugal) through bailout funds (EFSF etc.). But, Egan mentioned that German bond yields would stay down in the short-term because it remains the safest credit in the eurozone during the sovereign debt crisis, and the ECB is pumping liquidity into the system to keep rates down (as mentioned above). It's similar to why U.S. Treasury bonds rallied after they were downgraded by S&P. Below are charts of 5 and 10-year German bund yields, BUNL (the German Bund Futures ETN), and EUR/USD. EUR/USD is trying to climb back above the recent uptrend line. It is currently at 1.31734, +0.79%.

DeMark Still Thinks S&P Tops at 1338-1342, With Perhaps An Intraday Spike to 1375

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UPDATE: Tom DeMark told Bloomberg TV's Adam Johnson yesterday that the S&P will still top out between 1338 and 1342 (closing prices), with perhaps an intraday spike to 1375. DeMark said the long-term trend is "recycling". I blogged about DeMark's previous Bloomberg appearance here. The S&P 500 hit an intraday high of 1,333 last Wednesday, which is where the 2007 downtrend hits, but pulled back to 1,312 today. As noted on my previous post, there are still two more uptrend lines to break to confirm further downside ahead, in my opinion. DeMark created the DeMark Indicators, which traders use to measure market exhaustion. I've been following what DeMark's been saying in the media since January 2011, and he's been mostly right on his major market calls.

10-Year Portuguese-German Yield Spread Spikes to 14.51 (New High), 10-year Yield at 16.45% (Charts)

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The 10-year Portuguese/German yield spread is up 8.56% right now at 14.51! This is a new high it looks like. The spread measures Portugal's credit risk to Germany, since Germany is the safest sovereign credit in the eurozone. Look at the 1-year chart below of the spread. It is going parabolic! The 10-year Portuguese government bond yield is hitting a new high as well, up 8.1% at 16.45%. And last but not least, Portugal's credit default swaps hit a new high. Is there a bailout or default event coming?

EUR/USD Lower Ahead of Greek Debt Talks, EU Summit (Market Links)

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While waiting for news on the Greek debt deal and EU summit, here are some headlines in the meantime and a chart of EUR/USD at 1.317 (-.05%). Look at the perfect uptrends in the descending channel. The March E-mini S&P future is at 1305.5 (-0.53%).

Goldman's Tom Stolper Conducts Sunday Hitfest On The USD (1/29/2012, Zero Hedge)

Cutting Into Muscle - The Record Corporate Margin Juggernaut Has Just Rolled Over (1/28/2012, Zero Hedge)

Bubble Watching: Hainan Edition (looking at the property bubble in China) (1/30/2012, Also Sprach Analyst)

China Signals Limited Loosening as PBOC Bucks Forecast (1/29/2012, Bloomberg)

Hedge Funds Lift Bets to Two-Month High as Rally Accelerates: Commodities (1/29/2012, Bloomberg)

ROBERT SHILLER: A Housing Bottom? What Are They Thinking? (interviewed by Henry Blodget at Davos, Business Insider)

Recession Scares DoubleLine's Gundlach More Than Rising Rates (1/24/2012, Forbes)

Global Oil Production Update: A Strange Future Has Arrived (1/29/2012,

Is $SPY Exhausted Yet In Uptrend? $EURUSD Just Spiked to 1.317! (Technical Update)

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Here is some technical analysis for $SPY (the S&P 500 ETF) and EUR/USD. EUR/USD just pierced through October 2011 resistance and hit 1.317. The euro spiked against the dollar yesterday after the Fed (FOMC) said they anticipate "exceptionally low levels for the federal funds rate at least through late 2014." The FOMC kept the rate at 0-0.25%, and are continuing to reinvest principal payments from agency debt and agency mortgage-backed securities in agency MBS. It is interesting that EUR/USD's current uptrend line has the same exact slope as the October 2011 uptrend line. Y=mx+b algo? While the Euro is flying high, there is still a risk it could breakdown if there's a negative euro-zone catalyst, negative ECB catalyst, or expectations of a disorderly default by Greece. Simon Derrick, chief currency strategist at Bank of New York Mellon, told Bloomberg TV on 1/19/2012 that he thinks the Euro could trade down to 1.15-1.20 during the quarter. Other euro bears believe it will eventually hit parity with the dollar. For now, EUR/USD is climbing in an uptrend inside a descending channel.

EUR/USD (source:

Live Video of President Obama's 2012 State of the Union Address

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I embedded the live Youtube video: "The online-only enhanced version of President Obama's third State of the Union Address features charts, stats and data that helped inform President Obama's policy decisions." You can now follow The White House on Google+.

IMF Lowers Global Growth Outlook, Europe is Epicenter (IMF Videos, 1/24/2012)

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The IMF (International Monetary Fund) lowered its global growth outlook from its September projections. Europe tipping into recession is the greatest risk ("epicenter") to world growth. Read more: World Economic Outlook Update: Global Recovery Stalls, Downside Risks Intensify -IMF). In the three videos I embedded below, the IMF talked about their global growth outlook, fiscal challenges advanced economies face, and financial sector risks. Issues raised by IMF analysts have been addressed by the United Nations, Ray Dalio on Charlie Rose, Robert Prechter, David Rosenberg, and Richard Koo, on this blog (views vary): Fiscal consolidation and private sector de-leveraging by households and banks threaten global growth. The question is how governments manage it. Do they spread out the deleveraging process, or clear the debt quickly. George Soros, who manages billions and trades the macro environment, told Newsweek that he expects either a deflationary environment, or, worst-case scenario, a collapse of the financial system.

2012/2013 growth projections (full chart at IMF)
"In an update to its World Economic Outlook (WEO), the IMF said that the euro area would fall into a mild recession in 2012 after the euro area crisis entered a “perilous new phase” toward the end of last year, affecting other parts of the world including the United States, emerging markets, and developing countries.

Overall, activity in the advanced economies is now projected to expand by just 1.2 percent in 2012—a downward revision of ¾ percentage points relative to the forecast last September—picking up to a still tepid 1.9 percent the next year. The global growth outlook for this year is 3.3 percent."

See a chart of the IMF's downside scenario (% deviation from WEO baseline) for World and Euro area GDP growth at Zero Hedge.

George Soros: Deflation is Best-Case Scenario, Collapse of Financial System is Worst-Case Scenario

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Famed macro trader/hedge fund manager, George Soros, was interviewed by Newsweek and issued a warning for the developed world.

Image Source: NorwayUN
"“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”"

Read more at the
TheDailyBeast. What are Soros' thoughts on Central Banks printing money?

Jon Stewart on Newt Gingrich (Daily Show Clip)

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This was an interesting clip on the Daily Show (h/t Zero Hedge via Daily Crux).

Links: Greece Debt, Portugal, Japan, Treasuries, S&P 500, Natural Gas (1/24/2012)

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Eurozone finance ministers reject Greek debt offer - (Telegraph)

Euro zone ministers reject private bondholders' Greece offer - (Reuters)

EU Seeks Bondholder Concessions on Greece (Bloomberg)

Timely Greek lessons on the eurozone crisis (by George Provopoulos, Bank of Greece) - (Financial Times)

Fears Mount That Portugal Will Need a Second Bailout - (WSJ)

Bids for Portugal REN with 30-50 pct premiums-sources (Reuters)

Goldman Tells Clients To Short US 10 Year Treasurys (Zero Hedge)

10 Good And Bad Things About The Economy And Rosenberg On Whether This Isn't Still Just A Modern Day Depression (Zero Hedge)

Credit Suisse: 11 Reasons We'll See S&P 1,400 This Year (PragCap)

EU May Be Preparing for Greek Default, Bank of New York Mellon Strategist Simon Derrick Says (Bloomberg Video)

Hussman: Recession risk remains very high (HussmanFunds)

Watch The Republican Debate Live Here (NBC)

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Tonight's NBC Republican debate is in Tampa, Florida and moderated by Brian Williams. Ron Paul, Mitt Romney, Newt Gingrich and Rick Santorum are left. Watch it live below. Photo source: NBC.

Tom DeMark: S&P is Close to a Top, Bullish on DAX, Bearish on Bunds (Charts)

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Tom DeMark, creator of the DeMark Indicators (used to time market exhaustion), was on BloombergTV last Friday and made a call that the S&P 500 would top out between 1,338-1,342 this week (specifically on Tuesday). It closed on Friday at 1,315. Watch the interview after the jump for more details. The chart definitely looks like it's getting exhausted after this nice rally. On December 5, DeMark predicted that the S&P would hit 1330-1345 when it was trading at 1,258. He thought it would hit by Christmas, so he was a month off. The downtrend from the 2007 peak and 2011 high hits around 1,330 today.

He is also bullish on the German stock market (Frankfurt DAX) and bearish on German bunds (government bonds). I charted out the DAX and German Bund ETN (BUNL) below. Actually, BUNT (3x German Bund ETN) looks interesting as well. German bund yields are available at (10-year German bund yield). Interesting. So, are DeMark's indicators predicting that a "hard Greek default" will be averted? Or is his call for the short-term.

Greece can't make a €14 billion bond payment on March 20, so it is trying to cut a deal with private creditors to swap into new Greek debt at a loss so it can get bailout money from the European Union and IMF. Read the articles below for more information. There's a meeting today with finance ministers and an important EU summit on January 30. Wow, EUR/USD is up 0.83% at 1.30. Something is up, at least in the short-term.

GOOG is Back Below 2010, 2011 Highs After Q4 Earnings, Will Google Finance Socialize With Google+?

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Since gets paid by Google Adsense and is powered by Google services, I thought I'd listen to GOOG's Q4 2011 earnings call and look at its financial results. I embedded the call below via Youtube and put up a summary of Google's financial results from its press release. Google closed down 8.38% today at $586 after reporting weaker results. From WSJ:

"The weaker-than-expected results were hurt by Europe's economic woes as well as mobile and other new forms of online advertising selling for lower prices than Google's traditional ads. The issues come as Google continues its costly expansion beyond its core search-advertising business, which pits it against formidable competition in mobile, social networking..."

It would be cool if Google Finance built an online social bank with Google bankers and peer-to-peer lending, and Google+ had a social investing, trading and lending network. Or hook up with the financial Twittersphere and StockTwits. As of December 31, 2011, Google had $44.6 billion in cash and short-term marketable securities. Compete with the big banks, Google!

GOOG Technical Update

I see a false breakout above the 2010 and 2010 highs. It broke through the 50 day moving average today, but is still above the 200dma, 50 week moving average and 200wma. Also look at GOOG's trend from its IPO in 2004. It looks like a long-term ascending triangle formed using the highs in 2010-2012 (not perfect though with the 2007 high). If GOOG trades above $630 again that will probably provide confirmation that it wants to move higher, perhaps to $747 or the 2007 high. If it breaks through the long-term uptrend line, that would be bearish. The trendline hits around the 200 week moving average as well. Just looking at simple trends and support/resistance levels here.

GOOG 3-year Daily Chart

EURUSD Needs To Break Downtrend, Big Move Coming Either Way

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EUR/USD is trying very hard to break through that downtrend line in the death channel. It tried for the fourth time earlier this morning but couldn't manage. It is inside both channels again and needs to decide which path to take. If it can breakout of the death channel with confirmation, 1.3146 is the next resistance level and then between 1.34-1.38 through March. Billions of Italian and Greek bonds mature in the next two months. If EUR/USD continues to ski down this slope, 1.18 support is next and then 1.08-1.10. Interesting article at Zero Hedge: A Shocking €1 Trillion LTRO On Deck? CLSA Explains Why Massive Quanto-Easing By The ECB May Be Coming Next Month.

A lot going on: S&P Downgrades France, EFSF; Greece Defaults Shortly (EUR/USD, Bond Yield Reactions)

Morgan Stanley's Adam Parker: S&P Hits 1,167 in 2012, Multiple Contracts With Low Rates, Earnings Plateau

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S&P 500 through 2012
Adam Parker, chief equity strategist at Morgan Stanley, has a bearish outlook on the S&P 500 for 2012 with a year-end price target of 1,167. The S&P is currently trading at 1,289. The interesting part about his call is that he thinks the S&P's price/earnings multiple will contract "to 10x over time" because rates are low. He was on CNBC on January 3 and 9 discussing Morgan Stanley's report, see quotes below. To hedge himself, I noticed a CNBC slide that said he could be wrong if there is QE3, a meaningful cyclical upswing, or the U.S. government addresses the debt situation (wouldn't that sell off the market?). I found a quick summary of Parker's S&P call at Morgan Stanley's 
Global Strategy Roundup.

"US Equity Strategy: The 2012 Playbook
Adam S. Parker et al.

We establish a 2012 year-end price target of 1167 for the S&P 500, representing 7% downside from today's price and around 13% more conservative than the "muddle through" scenario implied by consensus. While 2011 was about multiple contraction, and further contraction is likely, we think 2012 and 2013 are likely to be more about earnings than the multiple. Our 2013 EPS estimate for the S&P 500 of $103.1 is 15% below the consensus bottom-up view of $121.1."

They also lowered their 2012 EPS estimate for the S&P 500 to $100 from $103. Parker discussed his market call with Jim Cramer and David Faber on CNBC on January 3.

S&P 500 Chart Looking Into 2012, Key Trendlines To Watch (SPY, $SPX)

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S&P Downgrades France, EFSF; Greece Defaults Shortly (EUR/USD, Bond Yield Reactions)

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10-year Portuguese Bond Yield (Bloomberg)
European sovereign credit ratings are in the news again. Standard & Poor's downgraded nine European nations on Friday, including AAA France, AAA Austria, Italy, Spain and Portugal. Yesterday, S&P also downgraded the EFSF, or European Financial Stability Facility, which is dependent on France's creditworthiness since they fund a large portion of the fund. Moody's then spoiled the downgrade party by keeping France at Aaa with a stable outlook. However, markets, except for Portugal (see chart), treated the catalysts like they were priced in.

10-year French OAT yield opened at 3.06%, hit a high of 3.12%, but then closed at 3.03% (price moves inversely with yield). And the 5-year French OAT yield spiked to 2.05% at the open and then closed at 1.86%. The 10-year French-German yield spread opened around 1.35 but then tightened to 1.26 at the close. On the other hand, Portugal's government bond yields spiked after S&P downgraded the country to junk. The 10-year Portuguese bond yield opened at 12.65% and rose all the way up to 14.40% to make a new high.