The Overnight Report: Bears Gaining Ground

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By Greg Peel

The Dow closed down 58 points or 0.5% while the S&P lost 0.4% to 1374 and the Nasdaq dropped 0.7%.

Clowns to the left of me, jokers to the right, here I am...

Which is what you might be saying if you were sitting in the middle of the Atlantic right now. To the left of the pond we have the Democrats and Republicans negotiating the fiscal cliff and yes...we're sick of it already. Unfortunately, we've only just begun (even though the cliff has been known about for twelve months) and at the moment there are US labour force representatives making their case to the White House and tonight it's the turn of business leaders. In the meantime, the business media will continue to speculate, suggest, predict and basically fill in air time given markets will be in limbo for several weeks under the cliff's substantial shadow.

To the right of the pond we have eurozone leaders and the IMF arguing over Greece. When we enter 2013 it will mark the third anniversary of arguing over Greece, of failing to come up with a definitive solution, and of applying yet another box of band-aids. Would you believe a point causing disagreement at this stage is to whether Greece must reduce its debt to 120% of GDP by 2020 or by 2022? Might as well argue over who will win the Melbourne Cup in ten years' time. But the way the Europeans operate, they'll no doubt still be unsure what to do about Greece by next decade.

The 2022 date represents a two-year extension offered by the eurozone leaders, represented by Luxembourg prime minister Jean-Claude Juncker, over the original 2020 date set by the IMF, headed by Christine Lagarde. Juncker and Lagarde were at each others' throats on global television yesterday in a public stoush that makes the ABC's Q&A look like a church picnic. It's fabulous for world financial market confidence. Lagarde wants another hair cut to be taken by Greek bondholders and the eurozone leaders, and ECB say no. Juncker wants the extension and the IMF says no.

Let's put that into perspective. The eurozone members do not want to take a hair cut and lose money, but they do want to extend Greece's debt maturity, which is actually a hair cut by another name. If Greece's debt obligations are not reduced, Greece will need more bail-out funds, which will be paid by the same eurozone members who don't wish to lose money on a hair cut. From any angle, pretty much a zero-sum argument. These are the people who run the world. God help us all.

The November 20 eurozone meeting has been set as the date for a decision. Last night Greece managed to successfully auction off a few T-bills, which will keep bread on the table for another week.

Wall Street traders in the meantime would just rather stick their fingers in their ears and say la, la, la...forget about cliffs and Greeks and think about nice things like rainbows, and puppies, and the fact Dow component Home Depot posted a surprise "beat" on its September quarter profit and raised its full-year outlook. It worked for a while ? by late morning the Dow was up over 80 points as the Home Depot result floated all sector boats and reconfirmed suspicions the US housing market is on the mend. But alas, the wet blankets eventually won the day and the indices drifted off again towards the close, and then accelerated into the red.

Currencies moved around a bit last night before settling back to be flat, with the US dollar index little moved at 81.09 and the Aussie ditto at US$1.0430. Gold is a tad lower at US$1725.20/oz.

Base metals did a whole lotta nothing in London, while the oils continued to drift. Brent was down US81c to US$108.26/bbl and West Texas slipped

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