What's Important in the Financial World (6/4/2012) QE3, Eurobonds

The debate over whether Europe should have one central financial authority grows louder. Even Angela Merkel of Germany has hinted she would drop her objections to eurobonds if this new authority has substantial influence over the budget activities of the region’s weakest nations economically. The European Commission would get much of these powers. Reuters reports Merkel also would like more central coordination of labor union negotiations and tax and social security laws. Merkel will have some difficulty with her position. The troubled nations in the region want eurobonds that would include Germany’s credit rating as part of a whole package that would offer capital markets a way to inject money into the region. Merkel does not want the bonds carried on its financial back. Merkel does want to change the game so any such bonds are married with stricter central control of the financial fates of the weaker nations. They countries are likely to reject this, as they have in the past.

Wii U Pro

Nintendo has broken the mold of video console design. It needs to do something to get market share back from Microsoft (NASDAQ: MSFT), which builds the Xbox, and Sony (NYSE: SNE), which makes the PS3. So, Nintendo has launched a new version of its Wii flagship at the game industry gathering E3. The new Wii is called the U Pro. It is heavier that past versions and wireless. And it contains more of the features its rivals have. Nintendo built its reputation on simple consoles that catered to a wide audience. The new product is a move in the opposite direction. There are rumors that Nintendo also will release a sort of social network to be used among people who buy its products. The ripples of Facebook’s success have moved into yet another industry.

The Sinking Dow

If the DJIA has an important support level at 12,000, either technically or psychologically, the floor is about to be breached. The index sits at 12,050, and a number of indications suggest investors will move out of stocks to fixed income and, perhaps, gold. Several factors will drive the move. The first is that faltering gross domestic product around the world will affect earnings of U.S. companies, probably as early as this quarter. And economic activity in the United States has begun to slow, based on recent job and GDP numbers. The financial components of the average are particularly vulnerable because of worries that balance sheets and corporate loans will be hurt by a slow economy.

Time for QE3?

Conversations about what can be done to salvage the U.S. economy will be dominated by whether the Federal Reserve will launch a QE3. So far, the Fed has reported that unemployment, housing and consumer spending have been strong enough to keep the option off the table. Some Fed members believe that a new round of easing will create inflation. Others says it is a small price to pay to keep GDP at a level of better than 2% improvement. An announcement of QE3 may be the only factor that could drive the markets back up. Between now and any proclamation by the Fed, however, the arguments on both sides may impact trading.

Douglas A. McIntyre