Stock Market Could Face A Massive Sell Off Today: German Nov. ZEW Index Falls Unexpectedly To -15.7, EU, IMF Clash Over Greece, An Important “Dual Test of Support” Is At Hand Right Now For The 500 Index, And Marc Faber Warns Of A Massive Market Meltdown

The German ZEW index of economic sentiment unexpectedly fell to -15.7 versus expectations of a -10.0 reading.

Things are deteriorating in Europe again.

The widely regarded ZEW survey shows that in the heart of the Eurozone, Germany, sentiment is tanking.

Here’s the report.


The ZEW Indicator of Economic Sentiment for Germany has dropped by 4.2 points in November 2012. It now stands at a level of minus 15.7 points.

Similar to the previous months, the indicator’s negative balance shows that the surveyed experts rather expect the economy to deteriorate than to improve over the next six months. This month’s decline supports this view. The negative assessment in November may be due to disappointing leading indicators. In the manufacturing sector, for instance, weak incoming orders indicate a further drop in production.


EU, IMF Clash Over Greece Revives Debt Crisis Fears

A public clash between Greece’s international lenders over how Athens can bring its debts down to a sustainable level has reignited fears that the crisis could flare up anew.

Eurozone finance ministers suggested that Greece, where the eurozone debt crisis began, should be given until 2022 to lower its debt to GDP ratio to 120 percent but International Monetary Fund chief Christine Lagarde insisted the existing target of 2020 should remain.

“We clearly have different views. What matters at the end of the day is the sustainability of Greek debt so that country can be back on its feet,” Lagarde said late on Monday, in an unusually public airing of a disagreement that has rumbled for weeks behind closed doors.

Beneath her sharp exchange with Eurogroup Chairman Jean-Claude Juncker lies a rift over whether eurozone governments need to write off some of Greece’s debt to them to make it manageable. IMF officials have pressed for such a “haircut” while Germany, the biggest contributor to eurozone bailout funds, has vehemently rejected it as illegal.


This Could Be The Most Important Week For Stocks All Year. S&P 500 bulls best hope support holds right now!!!



An important “Dual Test of support” is at hand right now for the 500 index. Long investors best hope it holds, because the support line off the 2009 low is very important!  FYI- Support is Support until broken!

Twice over the past 12 years, the 500 index broke support lines of these rising wedges at (1) in the chart below and prices fell off quiet a bit.



Marc Faber: Prepare for a Massive Market Meltdown

The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.

“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the ‘fiscal cliff’ — because there won’t be a ‘fiscal cliff,’ ” Faber told CNBC’s “Squawk Box.” “The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”



Wealthy Dump Assets Amid Worries About Going Over ‘Cliff’

For many of the wealthy, 2012 is becoming a good year to sell.

They’re worried about the “fiscal cliff,” which is when tax cuts expire and spending cuts are set to go into effect at the end of the year.

Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.


“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”



On The Game-Theoretic Market Crash ‘Solution’ To The Fiscal Cliff

Via Michael Naso of FBN Securities,

I expect a return to a skittish environment as soon as today especially in light of the selloff overnight.  Thus, traders should disregard Monday’s tape and focus on how upcoming events and the looming fiscal cliff will drive the price action. I am confident in my prediction for the course of the economy by leveraging simple game theory in handling the upcoming crisis as Congress returns for its lame duck session.  Consider the following payoff matrix:


“Compromise” reflects a decision from either side that each find unpalatable.  For example, this would include Republicans’ agreeing to a tax hike on portions of the population or the Democrats’ extending current marginal rates.  The numbers inside each of the quadrants indicate the level of utility, or satisfaction for the corresponding state.  For instance, if the government assigns a higher levy on those with over $250K in per annum income, then the Democrats would enjoy 10 units of utility while the Republicans, disappointed they could have negotiated a better deal, would lose 10 units.

Curiously, I injected a bit of algebra into the analysis by representing the scenario of going over the cliff as a two dimensional function using time and the dislocation of the capital markets, most notably equities, as inputs.  This loosely approximates the “theta” in the risk premium that I previously have alluded to when describing the potential shock.  Modeling the actual results using these two factors is more art than science; however, I will assume that the closer we get to the deadline and the further stocks decline, the more painful the choice of not compromising becomes.

For example, with seven weeks left until the sequester along with the S&P 500 trading only 7% below its multiyear highs, both President Obama and Speaker Boehner would rather shove two sticks in their eyes than move from their hardened stance despite some of the recent rhetoric in favor of bargaining in good faith.  As long as the loss of utility from both sides’ digging in their heels is more favorable than conceding to the preferences from those across the aisle***, then the game arrives at a Prisoner’s Dilemma.  In short and holding America hostage notwithstanding, the two parties would rather drag this fight out to the very end assuming the market does not collapse in the meantime.