Last week, Europe developed their template to resolve their financial crisis.  Stock markets around the world rallied and rallied strongly on the breakthrough.  I knew it wouldn’t last, as markets cannot go straight up without falling back for consolidation.  Plus, there had to be lots of details in the template that would concern the market.

So, I’m not surprised nor concerned that the stock market is down today, about 150 points on the Dow as I type this.  What does concern me is that the bond market is less happy than the stock market.  An old adage in the bond markets is that it is smarter than the stock market.  My experience is that there is some truth to that.

Italian bond rates have actually risen, which is worrisome.  In addition, the TED spread has increased, which means LIBOR rates have also risen.  This means banks don’t trust each other, even after the template.  Something is wrong!  Maybe, the concern is that the template may work for Greece but would not be replicated for Italy or Spain, who are much bigger problems.  Maybe, the concern is that the Greeks have gotten off too easy, creating a “moral hazard,” whereby irresponsible behavior is rewarded.

Complicating the market today is the bankruptcy filing for MF Global, a huge futures trading company.  While not completely unexpected, it did put the taste of Lehman Brothers in everybodys mouth, prompting stockholders to say “yuck” and “sell.”  MF Global is tiny compared to Lehman Brothers, and it is pretty clear that it failed as a result of one very bad trade.  (They bought a huge amount of bonds issued by European governments, just before they crashed.)

Increasing uncertainty this busy week will be a two-day Fed meeting (where nothing will happen), another G-20 meeting (where anything could happen), and the market-moving monthly Jobs Report on Friday (let us pray!).

The MF Global bankruptcy filing is a sideshow.  The lack of love in the bond market for the European template is the main attraction.