Financial markets surged last Thursday after European Central Bank President Mario Draghi said the bank will do “whatever it takes” to prevent the euro zone from breaking up. Our first article in this week’s blog takes a closer look at his statement and its effect on the markets. Next, we examine the downward trend in earnings for Standard & Poor’s 500 companies.  John Mauldin has an insightful article about the risk in Credit Default Swaps and how they compare to exchange traded futures.  At Day & Ennis, we do not invest in Credit Default Swaps.  Finally, we have an article regarding the market expectations for new stimulus from both the Federal Reserve and the European Central Bank.

Markets Rally After ECB Chief Promises To Save Euro – To avoid a euro zone breakup, European Central Bank President Mario Draghi has signaled that the ECB is prepared to intervene in bond markets to reduce borrowing costs in Spain and Italy.  This is another example of how the markets are responding to headline news about the European debt crisis. It has created significant volatility in the markets over the past two years. http://www.forbes.com/sites/abrambrown/2012/07/26/draghi-well-do-whats-needed-to-save-the-euro/

Earnings On Track For First Contraction Since Q3 Of 2009 – For the last two years, the profit margins for U.S. companies have been very high and we have felt they would probably come down.  S&P Capital IQ says that U.S. corporate earnings are set for their first quarterly decline since the third quarter of 2009.  Meanwhile, earnings forecasts for the rest of 2012 seem to be increasingly pessimistic. http://www.google.com/hostednews/ap/article/ALeqM5hpSKhZmzg-gg7aBPU3cDNb1kgg3A?docId=14254ee64e0c4286a916f661ad55f026

What Are Credit Default Swaps? – Credit Default Swaps (CDS) were a major part of the problem during the financial crisis, which ultimately required tax payer bail-out of some banks and insurance companies.  John Mauldin does a good job describing CDSs and how they differ from exchange traded futures.  At Day & Ennis, we do not invest in CDSs. http://advisorperspectives.com/commentaries/millenium_072812.php

Central Banks Are Expected To Act To Bolster Growth In The Euro – Both the Federal Reserve and the European Central Bank are scheduled to meet this week.  Many on Wall Street anticipate some kind of stimulus to emerge from these meetings. http://online.wsj.com/article/SB10000872396390443931404577553280695830546.html?mod=dist_smartbrief

We hope you enjoy reading these articles along with us and that you find them informative.  Please forward this to your friends and family.

John R. Day and Bill W. Ennis