The European financial crisis continues to bubble along. Yesterday there was a weak auction for Italian bonds and a strong one for the US 10 year. The euro has dropped to 129+ vs the USD this morning. The EU seems to think they have time to solve their problems. I do not believe that is true. Bloomberg radio reported this morning that the Italian Government needs to finance something like 350 billion Euros of debt coming due in 2012. If you believe as I do that the Euro is on a march to parity with the USD, who would buy Italian bonds for any reason? As a matter of fact there should be a massive liquidation of all things Euro and a corresponding purchase of all things USD. I think this trend is beginning and will be the single biggest driver of all the markets in 2012.
The January reinvestment is in full swing in the US Municipal bond market. As I have stated before states and municipalities have been working on their financial issues and even though people will argue about the solutions the local politicians at least are doing something. The average Governor or Mayor has to deal with the fiscal realities and must either cut spending, raise revenue or both. Investors are responding to this by purchasing municipal bonds. Additionally the municipal market is a domestic US enterprise and should not be affected by any international crises.