November 6, 2011Last week was defined by 2 major events: the Republican takeover of the House and the announcement of $600B in QE2.The above chart is the Intrade probability of the Republicans winning the house. This went above 50% back in July and a winis already priced in the markets. The bigger issues of healthcare reform and taxes are still up in the air and not going to beresolved soon.QE2 has been good for the markets but isn’t anything surprising. Every headline and news articles for the past 2 months hasbeen about expectations for QE2 and the Fed didn’t do anything out of line with expectations.

Currencies

Another week and another decline in the dollar. Although the trend is still down it’s interesting to note how strong thedollar was on Friday.

Maybe now that everyone isn’t constantly following every QE2 rumor and comment that some eyes will turn to Europe.Those are the CDS prices for Spain, Ireland (lifetime highs) and Portugal (nearing lifetime highs). I would have includedGreece but after 3 charts the point should be clear. Europe is still in a terrible place. Ireland especially stands out becausethey are making the austerity cuts that they should be making but the market keeps bidding up their CDS. Spain, Ireland,Portugal and Greece account for substantial portion of Eurozone GDP at 13.7%. What will also become interesting is Franceat 15.4% of Eurozone GDP because Sarkozy can’t get the retirement age raised from 60 to 62 without the country going onstrike. Let’s hope France is never in a situation where they need to make real cuts.