The Most Important Market Structure Chart

The most important chart this week is showing the percentage of stocks in weekly accumulation and mark-up stages closing above the 5-week moving average for the first time since December 23, 2010. The last similar occurrence was on the first week of September 2010 and coincided with the start of a relentless QE-driven rally into year’s end.

Since December 2010, the moving average had been unsuccessfully tested 5 times and each failure coincided with subsequent immediate sharp declines in the overall stock market. The simple fact that renewed weakness could have been expected last week as the indicator closed on the average, but instead charged furiously higher is hinting at the dawn of a brighter and sunnier weekly uptrend very similar to last year’s Fall rally.



... the rest can be found here: http://blog.alphascanner.com/?p=760

@zenpenny All of these factors caused me to move to a 100% cash position on Friday

There is no reason to deviate from something that has been working brilliantly well since the beginning of October. It has allowed me to look far smarter than I really am in anticipating and capturing a majority of this historic rally since October 4th. The correlation between the bottom and subsequent rally of 1998 and the current bottom/rally of 2011 continues to prove noteworthy.

The study confirmed that the second leg of the rally kicked off on Friday of last week. Also confirming that we would rally through this week. The second leg of the rally gained roughly 4.5% in 1998. For this week we have gained 3.8%.

The study tells us that we are about to embark on a sideways consolidation with a hint of weakness over the next week. In my experience with these studies, I have found that they are prone to breaking down during periods of market consolidation or pullbacks more than any other time.

There will come a time when this study stops working completely. The market cannot remain so highly correlated to any previous period for very long until it begins moving down a completely different path that forces us to search out a new road map for profit.

The last few days of the month have had a tendency to be strong during 2011. The month of October has not deviated from that path. The opposite is true, however, for the first few days of a new month. The tendency during 2011 has been to see the new month bring in the desire to take profits or further sell positions off. I don’t expect November to deviate from that trend.

From a psychological standpoint, we have seen a significant change in the mentality of investors as the markets are beginning to force people away from their preconceived tendencies towards bearishness. What we have currently is a cautiously bullish outlook for the markets. This outlook has been created purely out of reactive behavior to prices rising. The markets often times punish reactive behavior. They will, however, reward anticipatory behavior.

Anticipatory behavior involves investors looking for points in the market when the lights are off, the room is dark and the only sound that can heard is that of frightening screams and terror. October 4th was one such instance. There was no perceived security in buying that point. In fact, it was the most frightening time of all. Anticipation of a bullish outcome in the face of absolute fear was indeed rewarded.

Reactive behavior involves investors looking for points in the market when all their friends are gathered around them singing the wonders and praise of what a warm, cozy environment they are blessed with. Feel good stories are exchanged around the fire while sipping hot chocolate from multicolored cups lined with gold. There is a sense of safety and security that takes place with camaraderie. It works well for football games and battles fought during war. However, it has no place in the financial markets. If you find yourself surrounded by company, odds are you are the floor is about to cave in beneath you.

Let’s review:

1. The correlation study is pointing to a pullback beginning early this week
2. The first week of a new month has shown the tendency to be weak during 2011
3. Investor mentality has shifted significantly and there is now reactive buying taking place

All of these factors caused me to move to a 100% cash position on Friday. I have an eye on buying back into positions late in the week or possibly early during the following week depending on how the market reacts from here.

October was a very strong up month, there is no reason to sacrifice the gains ahead of a period where the odds favor a sideways market at best.

http://www.zenpenny.com/?p=2801

Thanks for the post; that was an enjoyable view.

Euro bailout - an animated explanation

http://www.guardian.co.uk/business/blog/2011/oct/28/euro-debt-crisis-animated-explanation

Why the latest eurozone bail-out is destined to fail within weeks

I want last week's European bail-out to work. My sincere hope is that collective and decisive action by the eurozone's large member states will stabilize global markets, at least for a while, so allowing the global economy to catch its breath.



As someone who works in financial services, I follow the markets – in the West, across Asia and the entire world – closer than most. Since the Bear Stearns collapse in March 2008, through the demise of Lehman Brothers and its ghastly aftermath, much of my professional life has been dominated by the angry flashing of those little lights on a Bloomberg screen.

In recent years, the violent gyrations on financial markets have been deeply discomforting, causing angst among market professionals, like me – but that is the least significant aspect. For those little lights represent, of course, the ebbs and flows of cash which, in turn, determines the fate of real businesses. It is at the sharp end of employment and livelihoods, dispossessed homes and broken families that the human impact of financial turbulence is most keenly felt.

So, yes, I want such turbulence, which will never be fully-eradicated, nor should it be in a free-market system, to now lessen to more manageable levels. Yet the responses of our politicians to recent financial troubles – hiding behind complexity and kicking the can down the road – have not only failed to temper the volatility, but have actually made it much worse.

Last week's eurozone "agreement", for all the related fanfare, was a case in point. Far from making the situation clearer, allowing investors to make considered assessments, this latest announcement made Western Europe's grotesque debt crisis even more acute, sowing further infectious spores of confusion.

The deal itself, unveiled dramatically in the early hours of Thursday, was met with the now obligatory "relief rally". The FTSE All-World equity index soared 4.1pc, helped by signs of renewed US economic growth. European bank shares spiked no less than 12pc on Thursday, as traders recognised, for all the official obfuscation, the latest dollop of government largesse.

By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.

Some say Western governments shouldn't "accept" what the market says. "Who do these trading people think they are," I hear from the lips of the educated but financially-illiterate political elite. Let's be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face. And I'm afraid the only rational response to Thursday's announcement is that the probability of such undesirable outcomes has just been increased.

European leaders have reached an "agreement", we were told, with the private holders of Greek debt, who now accept a 50pc write-down on their stakes. This is predicated on an additional €120bn (£105bn) cash-injection by EU member states and the IMF. By paying bond-holders less, and making other savings, the hope is that Greece can cut its sovereign debt from 150pc of GDP to 120pc in the next few years.

This deal was presented as a "victory" by the eurocrats. After all, back in July those nasty private creditors agreed only to a 21pc "haircut" on their Greek debt. The deal is "voluntary", though, nothing having been decided except the "50pc haircut" headline. In reality, by bargaining hard over coupons and maturities – how much the bonds will pay annually, and for how long – those who so unwisely lent money to Greece (eager to reap high yields, while always expecting a bail-out) will get a much sweeter deal. This is the discussion that will take place, behind closed doors, during the coming months. But that sweeter deal will need to be paid for with yet more sovereign borrowing, by some eurozone government or other, plus further sack-loads of taxpayers' cash.

It is telling that Greek bond-holders themselves were on Friday reassuring their investors that the reduction in the net present value of their stakes, compared with the "21pc haircut" deal, "will not be overly onerous". In addition, the July agreement, while also "voluntary", included a 90pc creditors' participation. Thursday's variant cited no such number.

So, the centre-piece of last week's "package" is far less decisive than meets the eye. It was, in fact, singularly indecisive. The hope that Greece will clean-up its balance sheet autonomously now relies even more on a privatization programme that is already laughably behind schedule. So the moral hazard will go on, making it tougher still for the governments of Portugal, Ireland and the other eurozone "peripheries" to sell to their electorates the virtues of fiscal responsibility. These are not clever-clever academic points. I'm pointing-out, quite simply, what the bond markets will have noticed.

Having said all that, the prospect of "haircuts", however half-hearted, now looms over eurozone sovereign bond-holders, not least fragile European banks. So Thursday's announcement also stressed that the €440bn (£386bn) euro European Financial Stability Facility would be "levered", allowing it to borrow to make it bigger. This is supposed to allow the eurocrats to raise cash without having to trouble national parliaments, given that they're likely to refuse.

The question of who will lend to the EFSF, on whose collateral, and who will ultimately repay the loans, was barely addressed last week. Such tricky questions will apparently be answered at the next European summit in December. Meanwhile, the fundamental disagreement between France and Germany regarding who should take the biggest losses – eurozone governments or private creditors – remains unresolved. Since Thursday's announcement, though, Germany's powerful constitutional court has issued an injunction requiring the country's full Parliament to approve any EFSF bond-buying.

What is needed, urgently, is a clean, transparent Greek default – allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".

The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.

The eurozone must be consolidated. World leaders should similarly force European banks to disclose their losses, we all take the hit and then we move on. Instead, we are served-up, in ever more complex variants, the same "extend and pretend" non-solutions. It gives me no pleasure to write this, but I give this deal two weeks.

http://www.telegraph.co.uk/finance/comment/liamhalligan/8857518/Why-the-latest-eurozone-bail-out-is-destined-to-fail-within-weeks.html

http://www.telegraph.co.uk/finance/financialcrisis/8856149/Italian-government-buys-19-Maserati-supercars-despite-austerity-cuts.html

OT: Took a reprieve today, but still kept an occasional eye on my twitter stream. Found this one particularly amusing.

@fallondpicks: $SPX Fed up getting whipped here. Head says next move will be lower to MAs. Market says "F**k U". Likely to end day flat. Going 4 beer soon.

Thanks. Dumped them both for a small gain. Live to play another day. I appreciate both yours and AD's advice. I bought the TNA to hedge/extricate myself from TZA so no point looking a gift horse in the mouth.

Edit: Never mind. Just read your original post

Bought a little TNA this morning to offset my TZA. Didn't really have much time to do more than that. Trying to decide whether to dump them both for a small profit. Could have been an ok day had I just taken my TZA lumps at the open. Interesting opinions on the board today. Hard to tell if this is just a relief rally or the normal strength for this time of year. No crystal ball here and I can't find the 8-ball.

@DougKass
Douglas Kass I am now in cash - reassessing the markets.

Europe Opting For Discredited Tools to Solve Crisis

Not long ago, European governments were blasting the financial products which contributed to the 2008 meltdown. Now, in an attempt to save the common currency, they are turning to those methods themselves. They have become no less dangerous in the intervening years.

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It was one of the central lessons of the 2008 financial crisis: Banks and their customers, so went the political consensus, should only invest in products that they were able to understand. That meant that banks should stay away from special purpose vehicles and structured products that used finance tricks to transform questionable debt into sure-fire investments.


That was then. Now, however, just three years later, the tune has changed dramatically. Indeed, it isn't the banks that are eagerly developing new products in an effort to transform large sums of money into even larger mountains of cash. It is the politicians themselves.

At issue is the euro bailout fund known as the European Financial Security Facility (EFSF) which is the focus of a critical European Union summit on Wednesday evening in Brussels. The fund is designed to provide needed funding to heavily indebted euro-zone member states, prop up wobbling European banks and buy sovereign bonds of struggling countries to help keep risk premiums as low as possible. But it's not big enough. With a lending capacity of €440 billion -- backed by €779 billion in guarantees -- the EFSF would be insufficient should Italy or Spain run into trouble.

The German parliament will vote on Wednesday on whether to allow Chancellor Angela Merkel to approve a leveraging of the fund to boost its effectiveness to up to €1 trillion. A test vote on Tuesday indicated that passage of the measure is assured, with just 11 rebels among coalition parliamentarians and broad opposition support.

Don't Totally Understand

Yet it is unclear whether all those voting in favor of leveraging the EFSF totally understand what it means. The original idea behind the EFSF is that the fund would provide 100 percent of any aid necessary for an endangered euro-zone country or would be exclusively responsible for buying up sovereign bonds. Should a country need €100 billion, for example, it would all come out of the EFSF.

Once the fund is leveraged, however, the country in need will still get its €100 billion, but the EFSF will only be responsible for a fraction of that total. The rest will be contributed by private investors that the EFSF attracts using guarantees or other tools. As a result, European leaders hope, the €440 billion lending capacity can be spread much further.

European heads of government, however, still haven't decided exactly how they want to do that. One idea that had been backed by France, that of granting the EFSF a banking license so that it could then loan money from the European Central Bank, has been rejected due to passionate German resistance.

But there are still two models under consideration.


¦The first is the insurance model, an idea which originated from Allianz Insurance board member Paul Achleitner. It foresees providing first-loss guarantees on sovereign bonds issued by troubled euro-zone members to make them more attractive to investors. The EFSF would thus not be responsible for the full investment amount. Instead, it would only be on the hook for, as an example, the first 20 percent. Should a country become insolvent and face a 50 percent debt haircut, the loss to investors would be just 30 percent instead of the entire 50 percent. Such a model would allow the EFSF to be spread much further and would, so goes the hope, attract investors to buy bonds.
¦The second model envisions the creation of a special purpose vehicle which other investors could pay into. It would be founded by the EFSF, which would also provide initial capital. But it would also seek investments from others such as the Chinese Investment Corporation, hedge funds or pension funds. The International Monetary Fund indicated on Tuesday that it too was considering involvement. The fund would then be used to buy European sovereign bonds. Investors would be able to choose among various risk classes with varying returns.

In theory, both models could work and encourage investment. But they are also not without risk. Should a country become insolvent, a leveraged EFSF could be depleted much more quickly than otherwise. Imagine an un-leveraged fund: The EFSF would buy a state bond, for example, for €100. Should the country then undergo a 50 percent debt haircut, the EFSF would be left with €50.

'Likelihood of Loss Persists

But in a leveraged model, the €100 would be used to attract outside investment by guaranteeing the first 20 percent of losses. Should a country then become insolvent and undergo the same 50 percent debt cut as before, the EFSF would lose all of its money by virtue of having provided first-loss insurance to investors.

Furthermore, as Sebastian Dullien of the European Council on Foreign Relations pointed out in a Tuesday blog entry, it is unclear that the insurance model would attract investors at all. Sovereign bonds, he writes, were primarily attractive in the past because of their safety. But a 20 percent first-loss guarantee -- in a world in which sovereign defaults tend to be much larger than that -- does not make such investments any safer. "Government bonds from crisis countries (would) have a little less downside attached to them should a sovereign default happen," he writes. "But the likelihood of loss persists."

Some are also uncomfortable with the fact that any leveraging model would involve the euro zone engaging in the kind of financial alchemy that they wanted to end just three years ago. "I find it incredible that they are doing exactly the same thing which they have been accusing the banks of doing," says Dirk Schiereck, a banking expert with the Technical University in Darmstadt. "It sounds like state-sponsored gambling."

Out of Options

Indeed, European governments have been heavily critical of similar methods when used by the financial industry. Many banks, for example, used special purpose vehicles to invest in the US sub-prime market -- and lost billions doing so.


But insurance on investments, in the form of credit default swaps, have likewise been blasted as one of the key ingredients of the financial crisis. And the idea of leveraging, borrowing vast sums of money to increase the size of one's investment, has also been looked down upon in recent years.

"The fact that countries are now looking to use such methods just shows how great the panic is," says Schiereck. It would appear, he adds, that they have run out of options.

Schiereck doesn't believe that artificially enlarging the EFSF will provide a lasting fix to the crisis. "In the short term, the leveraging strategy could work," he says. "But in the mid- to long-term, it is counter-productive to have a huge pot that takes over all debt. It will only make it more difficult for governments in Rome, Lisbon or Madrid to explain to their voters why they have to pass austerity programs anyway."

http://www.spiegel.de/international/europe/0,1518,794025,00.html

Interesting read. In any event, I've been impressed by how little public bickering appeared to go on.

Green Mountain Coffee Roasters, Inc. Announces Fiscal 2011 Fourth Quarter and Full Year Reporting Date, Conference Call and Live Webcast


WATERBURY, Vt.--(BUSINESS WIRE)-- Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR), a leader in specialty coffee and coffee makers, today announced that the Company plans to announce financial results for its fiscal 2011 fourth quarter and full year in a press release to be issued following the close of the financial markets on Wednesday, November 9, 2011.


http://investor.gmcr.com/

Looks like MWM was right as usual

Too little too late. Looks like they agreed to raise the retirement age to 67 to be in line with the French and Germans.

So I post a couple Berlusconi pubs and I'm an Italy watcher now? Guess you're right on that account . I really though he would put up a much better fight.

He's looking pretty relaxed by all accounts.

Thanks ico. Hated parting with the puts, but couldn't see giving up the gains. Those weelies are volatile. Greedy and burnt in the past - not this time around . A little greedy this time maybe

@DougKass
Market ramped on word that China will buy bonds issued by EFSF. But remember, they are not doing this out of the kindness of their hearts!

Edit: closed options as well. GMCR: nice call. I closed my ss, but am still sitting on my puts. Might close out any minute given the profits are melting away.

@DougKas
I just covered my SPyder rentals at 122.60 to ring register.

GMCR: wow, I stepped out for an hour or so. nice chart to come back to.

GMCR: not gloating, but grabbed the weekly 60's yesterday for .61. Weeklies can be crazy. Not enough to make a real difference, but nice being on the right side of an options trade for a change. Probably exit my ss (at least half) before tomorrow.

Kudos to MWM & ICO. Great job

GMCR: nice drop this morning. Wish I had bought more weeklies.

First Solar 3rd-quarter net up 11%, revenue up 26%

TEL AVIV (MarketWatch) -- First Solar Inc., /quotes/zigman/102025/quotes/nls/fslr FSLR +8.74% reporting a day after its chief executive stepped down and its stock lost a quarter of its value, said on Wednesday that third-quarter net income rose 11% on 26% higher revenue. The Tempe, Ariz., solar-power-equipment provider earned $196.5 million, or $2.25 a share, in the quarter, compared with $176.9 million, or $2.04, in the year-earlier period. Revenue reached $1.01 billion from $797.9 million. A survey of analysts by FactSet Research produced consensus estimates of $2.55 a share of profit on $999 million of revenue. The company now expects to earn $6.50 to $7.50 a share for 2011 on revenue of $3 billion to $3.3 billion. FactSet's survey is looking for $8.62 a share of profit on $3.57 billion of revenue. Mike Ahearn, chairman and interim CEO, said of the departure of Rob Gillette from the top spot that the board felt "First Solar needed a leadership change to navigate through the industry turmoil and achieve our long-term goals."

http://www.marketwatch.com/story/first-solar-3rd-quarter-net-up-11-revenue-up-26-2011-10-26?siteid=yhoof2

Very Low SPY Volume At A New Intermediate-Term High

SPY volume came in at the lowest level in over a month on Monday. Very low SPY volume when the market is at or near highs is often a bearish sign. A few studies related to this appeared in the Quantifinder this evening. I decided to examine the combination of a 20-day low in volume combined with a 50-day high in price.



Over the next 2 to 3 days there appears to be a solid downside edge based on the numbers. While I expected this to be the case, I was somewhat surprised to see that the edge persisted well beyond that. While I frequently show profit curves in the Subscriber Letter, I rarely do so on the blog. Today I decided to show it. So here it is using a 2-day holding period.



The consistently down sloping curve appears as impressive as the numbers.

http://quantifiableedges.blogspot.com/2011/10/very-low-spy-volume-at-new-intermediate.html

09.45 Conflicting reports on Silvio Berlusconi now coming in - the Italian prime minister's office has denied he will step down in January 2012.

But Nick Squires, the Telegraph's Rome correspondent, has more from the Italian press on the "secret pact" to resign in December or January that has reportedly been agreed by Berlusconi and his coaltion partner Umberto Bossi of the Northern League.

The embattled prime minister made the deal with his key coalition ally, Umberto Bossi of the devolutionist Northern League, in return for Mr Bossi's support for pension reforms, according to unconfirmed reports in two Italian newspapers - La Repubblica and La Stampa.

Italy is under huge pressure from the European Union to reform its pensions system and extend retirement ages as part of a plan to rein in its enormous public debt and revive its moribund economy.

Mr Berlusconi reached agreement on Tuesday night with Mr Bossi and will present a pension reform plan to the EU at a crucial meeting in Brussels today.

"Don't make a fool of me in Brussels, and I promise that we'll go to elections in March," Mr Berlusconi told the Northern League leader, according to La Repubblica.

http://www.telegraph.co.uk/finance/financialcrisis/8846201/Debt-crisis-live.html

I expected more of a fight out of him if this is indeed true. Nice running dialogue on this site.

http://realmoneypro.thestreet.com/

I also follow him on twitter.

I still have some SPXU that is dragging me down. It's looking a little better, but I need a lot more help to extricate myself. Hopefully Sylvio can help a brother out.

I'm still largely cash though, as it is impossible to gauge things with any certainty. I'm getting a little net bearish, as I don't believe the euros will settle things this week peacefully.

DeMark: S&P 500 May ‘Trap’ Bulls After Rally

The Standard & Poor’s 500 Index may climb above its close yesterday before starting a retreat in the next three weeks that will “trap” bulls, said Tom DeMark, the creator of indicators to show turning points in securities.

After the decline that began today ends just above 1,200, the benchmark gauge for U.S. equities may rally about 5 percent and begin a process that would signal another drop, DeMark said. The index’s peak will come in November after it closes higher on four to six successive days, he said.

“The market is going to build a trap, and many of the people who are bullish are going to be trapped,” DeMark said in an interview today on Bloomberg Television’s “Street Smart” hosted by Lisa Murphy and Adam Johnson. “It’s going to be tired and disappoint everyone.”

The S&P 500 fell 1.9 percent to 1,230.63 as of 3:45 p.m. New York time, after rallying 3.7 percent over three days.

DeMark said on Oct. 18 that the S&P 500 would climb to 1,254 before reversing and falling more than 5 percent. The index closed at 1,254.19 yesterday. His prediction last month that a decrease in the index that started Sept. 16 would end at 1,076 proved prescient when the gauge bottomed at 1,074.77.

‘Labored’ Upside
After it falls to about 1,206, the S&P 500’s “next move is going to be labored and it could take two to three weeks,” DeMark said. “It’s going to be selective rotational and trying on most traders. We don’t see the money being made that we did see off the October low.”

The S&P 500 advanced from the threshold of a bear market early in October on steps by European leaders to support banks and higher-than-estimated corporate earnings. The benchmark gauge rallied 11 percent in October through yesterday, following a five-month decline.

“There’s not that much more upside in the market,” DeMark said in a telephone interview yesterday after the close of regular trading. “The market top is going to be when we’ve had four or five days of successively higher closes on the S&P 500 from today’s close,” he said. “If that happens then we go down very hard.”

http://www.bloomberg.com/news/2011-10-25/demark-s-p-500-may-trap-bulls-after-rally.html


I got caught in the bear trap. Sure would like to stay out of the bull one.

EU rescue plans hostage to raw politics

Europe's debt crisis has taken a deeply political turn as parliamentary battles rock Italy and Greece and once again cause simmering dissent in Germany, vastly complicating the search for a workable solution.

Italy's coalition was scrambling to head off collapse late on Tuesday after deep rifts on austerity measures dictated by Brussels for a Wednesday deadline, when EU leaders reconvene for yet another crisis summit.

"I remain pessimistic," said Umberto Bossi, Northern League leader and key ally of premier Silvio Berlusconi, who had warned earlier in the day that the government was in danger of collapse.

Mr Bossi said his party had offered a compromise on fresh austerity but could not accept EU demands for a rise in the retirement age to 67. "The people would kill us," he said. The pension reform is the EU's tacit condition for intervention to shore up Italy's bond markets.

Silvio Peruzzo from RBS said the Italian government is likely to "implode" before its mandate ends, risking "an ever more severe deterioration of the crisis in Europe".

The warning came as French President Nicolas Sarkozy told an Élysée breakfast meeting held behind closed doors that "Europe has never been so close to explosion".

Mounting risks of a eurozone recession threatens to undercut Italy's public finances, offsetting gains from a €55bn (£48bn) austerity package passed in September. Italy's consumer confidence index crashed to a three-year low in October. Further fiscal tightening risks tipping Italy into debt deflation, and possibly the sort of the downward spiral that has engulfed Greece and Portugal.

Mr Berlusconi reacted furiously to suggestions his country should be put into "administration", and lashed out at Mr Sarkozy for presenting Italy with an ultimatum.

"Sarkozy is afraid of losing his AAA [credit rating]. If he thinks he can resolve the gigantic problems of his banks in Greece by attacking us, he is making a mistake. Nobody tells us what to do," said the Italian leader, adding that his country had already passed "two very rigorous budgets" since August, when the EU demanded fresh belt tightening.

Meanwhile, Greek finance minister Evangelos Venizelos said the EU's latest proposals may require a "super-majority" in Greece's parliament. The gambit seems intended to force the New Democracy opposition to sign up to measures that have already led to endemic street protests, or precipitate a calamitous chain of events as the rescue programme unravels.

"We will not be drawn into the mistake," was New Democracy's riposte, sticking to its line that the EU-IMF "Memorandum" is destructive and must be revised.

The risk for the EU is that Greek leader George Papandreou may take advantage of a failed vote to his extricate his PASOK party from an austerity policy that no longer commands civic support, and has clearly failed – as made by clear a leaked report from the EU-IMF-ECB "troika".

A "disorderly default" is now a high risk as Germany pushes for a 60pc haircut on Greece's private bondholders. The International Institute for Finance said a coerced deal would be "tantamount to default" and set off severe contagion. "There are limits to what could be considered as voluntary," it said.

Banks that have insured holdings of Greek debt through credit default swaps (CDS) have little incentive to take part in a voluntary deal that avoids triggering the default clause.

In Berlin, Chancellor Angela Merkel faces a tense vote in the Bundestag on Wednesday after narrowly surviving such an ordeal in September, this time over plans to leverage the EFSF to €1.4 trillion. Once again there is a risk that a backbench revolt will force her to rely on the opposition Left to carry the vote, undermining her grip on power.

Four lawmakers from the Free Democrats (FDP) in her coalition said they will vote "No" and two will abstain. Frank Schaffler, the FDP's economic spokesman, said the government had broken a pledge given four weeks ago that the fund would not be leveraged. "The Bundestag has been deceived," he said.

Wolfgang Bosbach, a leading Christian Democrat, will also vote "No", protesting that the escalating bail-outs have done nothing to help Greece and are merely piling up burdens on Germany's own children.

The two options to expand the EFSF are to use the fund to insure the first 20pc chunk of loss on eurozone bonds, or as seed finance for a special investment vehicle (SPV) linked to the International Monetary Fund, China and other creditors.

Carl Astorri from Coutts derided the proposals as incoherent mish-mash. "If the EFSF is increased either by leverage or accounting tricks such as those used in the US mortgage market, then any initial positive response is likely to prove short-lived. To draw a line under the crisis once and for all, the ECB's balance sheet needs to be put on the line," he said.

RBS said the "first loss" leverage plans for the EFSF concentrate risk and are "very dangerous". They are likely to fail unless they are backed by the ECB's full firepower. This has been vetoed by Germany.

The warning signs are clear. The spreads on EFSF bonds have jumped to a record 139 basis points over German Bunds. The viability of the rescue fund itself is in question.

http://www.telegraph.co.uk/finance/financialcrisis/8849328/EU-rescue-plans-hostage-to-raw-politics.html

Is Berlusconi being sacrificed?

Is the Italian Prime Minister being sacrificed on the altar of finding a deal to fix the euro-zone crisis?

As the deadline for fixing the euro-zone summit approaches, more and more attention is focusing on Italy.

Quite simply, unless Italy can be protected, no agreement will convince the markets.

The muscling of Italy has intensified because Europe's leaders have struggled to increase the firepower of their main rescue fund - the EFSF.

It is likely that on Wednesday they will announce that the fund has been leveraged up to one trillion euros.

Italy's debt stands at 1.8tn euros. It needs to issue some 600bn euros in bonds in the next three years to refinance maturing debt.

Ganging up

So President Sarkozy and Chancellor Merkel ganged up against the Italian leader Silvio Berlusconi at the weekend.

They told him in no uncertain terms that he had to get his public finances in order.


Are the French and German leaders trying to force Silvio Berlusconi from office? They want further spending cuts, pension reform, and changes that will boost growth in the long run.

The Italian leader was told he had to deliver a letter by Wednesday setting out his plans to rein in spending.

The letter must list concrete steps and come with a timetable. Mr Berlusconi was told he had to bring the letter to Brussels.

Injured pride

Silvio Berlusconi was furious.

"Nobody in the union," he wrote in a letter, "can appoint themselves administrators and speak in the name of elected governments and the peoples of Europe...

"No-one is in a position to give lessons to their partners."
It did not help injured Italian pride when Chancellor Merkel and President Sarkozy were asked on Sunday whether they were reassured having met Mr Berlusconi.

They smirked and exchanged ironic smiles. Italians - even those opposed to the Italian prime minister - were insulted.

The Italian president said the smirks were "inappropriate and unpleasant".

Others suspect that France and Germany are trying to engineer Mr Berlusconi's departure and have him replaced by a figure who will carry out reforms and so calm the markets.

Their demands threaten Mr Berlusconi's fragile coalition.

The pension reform could raise the retirement age to 67. Umberto Bossi from the Northern League - and Berlusconi's key coalition partner - said: "To retire at 67 years, to cancel old age pension, all of that is not possible... we cannot make the retirement age 67 years. People will kill us."

Mr Bossi won't budge and made it clear that the demands put Mr Berlusconi's government at risk.Direct conflict

James Walston, a political analyst in Rome, said: "We are in completely uncharted waters.

"It has been clear for decades, of course, that there is tension between sovereign states and the European Union," he said.

"But this is the first time that there has been a direct conflict, tension, between a single leader of a EU country, and a big EU country, and the institutions.

"This is institutionally very new as well as being in the middle of a major crisis," Mr Walston said.

Bullying denial

All of this forced an EU spokesman Amadeu Altafaj to deny that Italy was being bullied.

"You mentioned the word demands, requirements, humiliation. No there's no humiliation involved," he said.

Leaving aside Italy, Europe's leaders are struggling to come up with hard figures.

It still has not been settled how big are the losses the banks should accept over Greek debt.

The size of the EU's main bail-out fund will be difficult to quantify due to the complexity of the two main schemes.

http://www.bbc.co.uk/news/world-europe-15452367

I was thinking the same thing. When Ico posted "fizz" I immediately took a look to see how soda was doing.

Berlusconi is my thermonuclear device. I'm waiting for him to blow his top.

I think you're right on mr market wanting to go up, but I don't trust that the euros can keep their disagreements out of the press.

GMCR: I wish I had bought a few more weeklies. Still have an SS position that I'm mildly under water on. Have you heard anything more on their earnings date?

NFLX: nHOD @77.75. Real quick 1+ pt jump

GMCR: I dipped in with a few 60's. Very small. Total lotto money. I believe the NFLX 80's went from .25 to 6.5. Unreal.

GMCR: might be worth a small lotto weekly put buy.

Nice one MWM! Pushed me from the hall I believe.

Sold my TNA PM on the euro news this morning. I'm counting on Berlusconi and others to move my TZA up. Still watching NFLX for a potential bop.

Berlusconi is a ticking time bomb IMO. I look for the rhetoric to escalate with this guy. JMO, but this guy has an ultra inflated sense of self.

NFLX: bid/ask 79.75x80.5 this morning. Dang. Also cut to sell by Janney with $51 price target (http://investorshub.advfn.com/boards/read_msg.aspx?message_id=68304719)

$51 may come real fast IMO

Make that 26%. Hopefully he'll get to 30 by morning.