Excerpt from the MIR (10/09/2012) Posted by John on September 10, 2012

September 10, 2010: Excerpt from the Market Intelligence Report

If depositors in Spain are not convinced it is safe to leave their money in Spanish banks, how long will it be before other peripheral banks experience the same issue- or even German depositors who are essentially backing up the whole system? Spain, for the moment, remains the epicenter of Europe’s problems. Unemployment among Spanish youth is now over 50%, which is an unsustainable situation. PM Rajoy is resisting a full bailout from the ECB because it would mean the end of Spanish sovereignty. In the end, I think he will have to take the money, at which point investors can focus on the next problem area.In the U.S., the fiscal cliff remains an unresolved issue and it is my belief there will be no deal before year end. This is partly what the Fed will respond to, pushing money into the system now, hedging the negative effect of the fiscal cliff which the CBO estimates as adding another 1% to the unemployment rate and the U.S. plunging into recession. The Fed will respond to unemployment numbers. When the government reported an increase in the unemployment rate on Friday and the total number of people not in the work force increased to 88 million, in my view that sealed the deal. There is no reason for the Fed to wait any longer. I think the Fed will buy MBS, it may announce an unlimited buying program, the language on the length of time which ZIRP remains can be extended and I think one new twist should be added in order to insure QE3 has the desired effects. The effect of weak economic data on expectations for QE3 can already be seen in the rise of precious metals prices and the S&P 500 over the past month. Anecdotally, I think equity investors remain defensively positioned, pretty much everywhere in the developed markets. In the U.S., equity funds outflows continue, at a pace of $15-$20 billion over the past month. Volumes on the exchanges have fallen sharply and in OTC markets, I have been told volumes have collapsed in some EM markets. So for contrarian investors, the U.S. and European markets are positioned to continue their rallies.