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This is getting boring. I feel like the doctor who can see the tumor that is killing the patient, but I am waiting on the hospital approval and the politics involved before I can get the go ahead to start cutting….

If you just glanced at the financial news Friday and then a stock ticker you might be inclined to think that the market was really upset over that jobs figure. But the truth is that the driver of the market is the same story it has been for the last few months – Europe. The markets know that the recent “fix” isn’t a fix at all. And they’re displaying their displeasure with it. Europe tried to kick the can once again and it’s not going to work. There’s simply no denying it at this point. They have one of two decisions – implement a euro bond with the path towards a fiscal union or scrap the whole project and let’s see how the world does under a Lehman X 10 sort of environment. It’s an easy decision in my opinion. And the markets are going to force this issue until the trade imbalance is resolved through the creation of a sovereign monetary state(s). And that means full speed ahead into fiscal union or full speed ahead into a euro break-up.

In the meantime, Italian stocks were getting crushed Friday as the MIB tanked 3%. And even worse, the bond market in Italy understands that the math doesn’t work. Italy’s debt situation just isn’t going to improve. Especially when their manufacturing sector is tanking. The ECB can step in again like they did in August, but without setting the price, these are just temporary blips on the way to higher yields.

We’ve seen this movie in Greece. We know how it ends. The longer we keep denying it the longer we risk some sort of catastrophic market outcome. Europe needs to stop holding the global economy hostage. They have to come to grips with what they’ve built. Are you going to finish the monetary union or are we now deciding that this was a bad idea to begin with?

I have a personal preference (and I happen to think that a fiscally united Europe could be a force to be reckoned with), but ultimately, the European people must decide what they want and what they believe is in the best interest of themselves. But they need to decide soon because the longer this goes on the worse this global economic crisis gets….

Source: New Day, But Markets Know It's The Same Old Story