Monday, Sept. 19, 2011 11:41 AM – Fed Mtg & Europe

Stocks were down over 2% this morning but have bounced up to -1.8%. They followed Asia and Europe lower. The latter was down as much as 3% following a disappointing weekend in which the markets expected announcement of progress on the Greece situation and got nothing. Bonds are generally higher and gold is down over 1% as profit-taking there continues.

As I wrote last week, the IMF has withheld a 12 billion Euro payment from Greece because it is badly missing its required targets. Greece runs out of cash the end of October so there is a lot of talking trying to find a way for the payment to be made.

Meanwhile, Reuters reported today German banks need about $175 billion to be adequately capitalized. A report earlier this month said European banks need $280 billion. That sounds low since the top 3 French banks would be insolvent if Greece defaults and of course there are other countries as well. I fully expect the Eurozone as a whole or the individual governments themselves to come up with that bailout. I also expect a Greek default but one that will be arranged in advance.

The Fed has an unusually long 2-day meeting starting tomorrow and plan to make an announcement Wed early afternoon. Expect Operation Twist to be announced and for them to say they will continue to make dollars available to Europe. Anything less or more will be a surprise. The reaction to the announcement will set the tone for the second half of the week and into next week.