Wed, 9/28/11 11:28 AM – Everything Slightly Lower, Eurozone Bailout Rumor

After a brief rally, stocks turned down to continue yesterday PM’s decline. For the first time in a long time everything on my index screen is red – stocks in the US, Europe and Asia, gold, the dollar and bonds. All are down less than 1% for the day. That is unusual because gold and the dollar usually move opposite stocks, as have treasury bond prices.

There was an expectation both in Europe and the US that the Eurozone bailout fund (EFSF) would be increased and leveraged up to a far larger amount, say € 2 trillion euros, an idea that the Germans quashed late yesterday. Right now the fund is 250 billion euros and various Eurozone parliaments are voting on whether to increase it to 440 billion. Leveraging a 440 billion euro fund up to 2 trillion might hurt the credit ratings of the various countries and thus increase their own borrowing costs. The fund is still likely to be raised to 440 billion.

A question currently is whether the bailout fund will be strictly used for Greece or will also be used to recapitalize trouble European banks.