U.S. stocks ended mixed on Tuesday as the Dow Industrials (thanks largely to shares of IBM and Chevron) and S&P 500 bucked a move lower in oversea bourses, while the NASDAQ Composite followed the International lead.

Basic materials, health care and telecoms were the session’s leaders.  Consumer discretionary, financials and tech were the losers – all closing down for the session.

The domestic market was definitely pressured by the way overseas bourse behaved.  Europe closed lower, erasing the bounce of the previous two days.  Asia closed uglier as most of its major bourses closed down 1-2%.  The Shanghai Composite held up best, but has been on a three-week slide that puts the index right at a 2 ½ year low –  and down 62% from the peak hit in 2007.

We were without an economic release yesterday, so below the click is a rundown (with my comments) of what the December 9 EU summit will seek agreement on (apparently, Merkel and Sarkozy have already agreed on these aspects).  It’s senseless to make any guessing on how the summit plays out (one hopes they can get it right after 15 summits in 23 months).  In the end though, it sure looks like the ECB (money printing) will relied upon to rescue the zone and I don’t see how the necessary cohesion among nations takes place -- the latest plan seeks authoritarian measures, skirting the democratic process as Germany and France seek to quickly change the Lisbon Treaty.

Market Activity for December 6, 2011

Sector Activity for December 6, 2011

Here are the goals Merkozy will attempt to achieve:

 * No PSI – private-sector investors will not be asked to bear some of the losses of future debt restructuring (This means there will be no way to restructure in a “voluntary” manner and if Europe gets into this mess again, assuming they get out of this one, credit default swaps will be triggered and the zone’s banking system may find its current problems child’s play.)

 * Change the Lisbon Treaty for all 27 EU members, and if that can’t be achieved (which it can’t because obviously the UK isn’t going to agree to give up sovereignty) then they’ll move forward with a new treaty for the 17 eurozone members (This is to allow Germany to direct other members on how to manage their budgets – if it’s even enforced, ceding such sovereign control will undoubtedly increase animosities and one can imagine a pretty quick end to the euro. This will be done without a vote from the various Parliaments -- to hell with democracy.)

 * Automatic sanctions for countries that breach the 3% debt/GDP threshold (Yeah, we heard that with the initial treaty; Germany hasn’t even achieved this.)

 * A “golden rule” to be written into the constitutions of all 17 zone members, requiring them to balance their budgets (This results in additional loss of sovereignty, besides they are so far from this reality that it’s laughable)

 * Bring forward the ESM (European Stability Mechanism, which will be the zone’s permanent bailout facility) from 2013 to 2012 (Of course, permanent bailout funds should be seen as suspect on their surface, but with the paid-in capital of €80 billion – and supposed lending capacity of €500 billion – it’s not much larger than EFSF, which is the current temporary bailout fund.)

My assessment is that EU leaders are still planning on relying on Draghi and the ECB as the ultimate backstop; I just can’t see MerKozy accomplishing these goals.

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Today’s date has lived in infamy for 70 years.  Super thanks to the veterans of WWII!

Brent Vondera, Senior Analyst

Phone: 636-449-4900