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It’s the world’s crisis, not just Europe’s

12/01/2011
Within the past 36 hours global central banks have coordinated monetary policy measures not taken since March 2009. Clearly, something within the European credit markets – and perhaps on the balance sheets of European financial institutions – motivated their actions. Ben Bernanke and his counterparts are going back to the 2008 playbook to reintroduce liquidity measures that were extremely supportive of returning global credit markets from their 2008 frozen condition.
 
Participants in the action were the U.S. Federal Reserve, European Central Bank, Bank of England, Swiss National Bank, Bank of Canada, and Bank of Japan. Additionally, the People’s Bank of China reduced the reserve-ratio requirement before the U.S. market open, and Brazil’s central bank lowered the benchmark lending rate by 50 basis points after the market closed. I would expect the Reserve Bank of India in the next few days to take measures to increase liquidity as well.
 
Investors should view these efforts as an indication that while European governments struggle with the concept of “All for one, one for all,” global central bankers understand they must send a message to the global markets that “All for one, one for all” is a shared belief of global central banks.
 
The market consequence is to unwind both the prevailing pessimism in sentiment and elevated “short positioning” of the days surrounding Thanksgiving. Discomfort in the European credit markets will remain; the central banks’ actions do not eliminate that. However, I expect the market will attempt to elevate above unchanged for the year in the S&P 500 Index at 1257.64 and to challenge the 200-day moving average at 1265.89. Overhead resistance remains at 1300 to 1325 in the S&P 500, while 1190 to 1195 now becomes near-term support. 
 
My focus remains less on opportunities for 2011 and more on the formulation of a strategy for 2012.  
 

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