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Gary Smith’s Market Take for February 21, 2012

Here’s my take on the markets today, February 21, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly deteriorating today. The TED Spread is rising +3.5% to 43.1 bps. The 2Y Swap Spread is gaining +1.5% to 29.9 bps. The Libor-OIS Spread is rising +1.28% to 38.4 bps. The Western Europe Sovereign CDS Index is gaining +1.9% to 341.74 bps. The Germany sovereign cds is gaining +2.0% to 83.33 bps, the France sovereign cds is rising +2.8% to 180.83 bps, the Italy sovereign cds is rising +1.65% to 390.0 bps and the Spain sovereign cds is rising +.82% to 369.33 bps and the Portugal sovereign cds is rising +1.0% to 1,116.21 bps. However, the 3M EUR/USD Cross-Currency Basis Swap is rising +1.6% to -68.50 bps and the European Investment Grade CDS Index is down -4.2% to 117.22 bps. Overall, credit gauges have ceased their recent trend of improving and are still at stressed levels.

Major Asian indices were mostly higher overnight, led by a +.75% gain in Shanghai. Asian indices did not trade as well as I would have expected given the recent RRR cut in China and Greece debt deal announcement overnight. As well, major European indices were mostly lower today, led by a -.65% decline in Spanish shares. The Bloomberg European Financial Services/Bank Index is falling -.69%.

The Transports are badly lagging again. This index is down -3.3% since Feb. 2 versus a +1.7% gain for the S&P 500. Oil has broken out from its recent range, which is a large negative. Retail sales have already decelerated to below average rates and this will provide another headwind. I was recently stopped out of my SCO long and I still have my oil service long. The Greece debt deal may buy politicians some more time, however I still believe the European debt crisis will flare up again in even more intense fashion down the road. I am still positioned 75% net long.

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