Quotable

"I have often thought that if heaven had given me choice of my position and calling, it should have been on a rich spot of earth, well watered, and near a good market for the productions of the garden. No occupation is so delightful to me as the culture of the earth, and no culture comparable to that of the garden. Such a variety of subjects, some one always coming to perfection, the failure of one thing repaired by the success of another, and instead of one harvest, a continued one thro' the year. Under a total want of demand except for our family table. I am still devoted to the garden. But tho' an old man, I am but a young gardener."
                              Thomas Jefferson

Commentary & Analysis
The markets get data-fied today, but it probably won't carry.

S&P downgraded Spain. But who cares?

Italy had a disappointing bond auction. But who cares?

The spread between French and German 10-year bonds has widened to its highest level since the euro came into existence [see chart at right]. But who cares?

What matters is that Slovakia got out of the way and now eurozone members are free to expand the bailout clout of the EFSF. Not only that, there is talk that the EFSF will offer insurance to investors in order to attract additional money that can be used to fortify the fund.

The week has played out so nicely for the eurozone and the EFSF initiative that Asia is smiling. 5-year credit default swaps of top Asian nations continue to fall this week, indicating investors aren't as concerned about global market risk.

I shot this chart over to Jack this morning and he thought it might suggest China is willing to unleash a good amount of stimulus-like efforts. After this week's news about Chinese narrowing trade surplus is added to all the other headwinds that are causing China's economy to slow, you naturally might expect China to take some sort of action.

Unfortunately for them, they've been trying to reduce the impact of excessive lending (through monetary tightening) that was spurred on by China's last stimulus move. Inflation, while leveling off just shy of recent highs, is still a concern. So whatever stimulus China might try to implement will probably be conservative and fall flat after the initial euphoria.

As far as we can tell now, this chart simply reflects what we already know - risk appetite has recovered in the month of October.

But, back to China, their trade data may bring about a stimulus on its own. With a reduction in exports, China might not be pressed as hard by the US to free up the value of the Chinese yuan. Legislation is sitting in Congress that would put tariffs on Chinese goods based upon China's currency manipulation.

Should legislation be blocked, it would be welcomed relief as China tries to carefully manage this slowdown, hoping to preempt a hard landing. They've become notorious for their economic management, but I'm not sure they are able to avoid a confluence of problems even if they avoid tariffs and have some flexibility with their currency.

As we close out the week, copper is up almost 3% today; crude oil is up more than 2.5% today; the S&P 500 is up 1% today; things in the Eurozone are looking bright; US retail sales beat expectations (even though consumer sentiment continues to slide). Might this exuberance indicate the final blow-off move of this corrective risk-appetite rally?

A measure of short positions on the NYSE has fallen pretty sharply as sellers get squeezed. From The Wall Street Journal.

Short interest in stocks listed on the New York Stock Exchange decreased 4.6% in the second half of September from the prior two-week period, according to the exchange's semimonthly data Thursday.

The market has certainly worked off some excess. I think we're getting close.

Have a good weekend.