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Stability of the European Union (9)? (Starts November 18, 2011) 102 comments
I changed the name of this Insta on Nov 21, 2010, after Ireland said they are seeking a bailout.
This Instablog is the result of a question by one of the Renegades in OptionsGirl [OG] Quick Chat 90
tinyurl.com/24y6u87
Basically, what I wanted to address was what shoe is going to fall first, the US Dollar, or the Euro... I also wanted to see if there was any evidence for a time estimate with respect to issues for the Euro.
I added more information on August 21, 2010.
____________________________________________
Things are not looking good for Greece. I don't think they are going to be able to service all that debt. Enormous cuts in spending accompanied with increased taxes will likely destabilize their government. Remember, they can't print money as a way out of their debt trap. Investors are going to buy the safest assets in this environment. That should drive Greece's bowering rate higher. Here is some relevant information from a recent Bloomberg article:
___________________
(August 13) Spanish, Greek Bonds Fall on Renewed Growth Concern; Bunds Gain By Anchalee Worrachate
On August 13, the extra yield, or spread, investors demand to hold Greek 10-year securities instead of equivalent-maturity German debt, Europe’s benchmark, rose 11 basis points to 808 basis points. That’s the most since May 7, before the European Union announced a 750 billion-euro financial backstop for the region’s most indebted nations.
Concern some European nations would struggle to pay their debts helped boost demand this year for bunds, the region’s benchmark securities. Spanish bonds returned 1.5 percent this year and Irish debt 0.5 percent, compared with an 8 percent gain from German securities, according to indexes compiled by European Federation of Financial Analysts Societies. Greek bonds lost 19 percent.
Data today showed Spanish banks borrowed a record amount from the European Central Bank in July as investors shunned the indebted nation’s lenders. Borrowing rose 3.1 percent to 130.2 billion euros ($167 billion) from 126.3 billion euros in June, according to daily averages compiled by the Bank of Spain.
Spanish bonds are heading for their first weekly loss in five on renewed concern that climbing borrowing costs for Spanish regions put the national budget at risk.
Catalonia, which accounts for a fifth of Spanish gross domestic product, has been shut out of public bond markets since March and the extra yield it pays over national government debt has almost tripled this year.
The yield spread between 10-year Irish bonds and the benchmark German debt widened to 294 basis points today, the most since June 29, as investors bet the government will have to inject more capital into banks, including Anglo Irish Bank Corp.
Ireland’s borrowing costs rose at an auction of its six-and eight-month bills yesterday as investors demanded higher compensation for risk facing the government’s finances. The country will sell 2014 and 2020 bonds debt next week. tinyurl.com/2dtuc5v
______________________________________________
While the US is in a somewhat similar position, the US can print money, and our bonds have not be rated as junk. The higher the interest rate, the higher the perceived risk. The higher the interest rate, the deeper into the debt trap you go.
I conclude that the Euro will drop relative to the dollar as money seeks less risk. How rapidly will this occur? I think the following chart provides some evidence with respect to timing.
From June 2010 to August 2010 the average ten year Greek bond interest rate went from 64% of its peak crisis level to 85.5% of the peak crisis level.
As of August, the Greek ten year bond interest rate is at the second highest level its been at over the past five years.
If the interest rate is proportional to risk, than in the last three months, the risk level of the Greek ten year bond has increased at an average rate of 7.2% per month [ (85.5 - 64)/3 ].
I suppose a natural accompaniment to shorting the Euro would be to go long on the dollar. This assumes that the debt crisis of the European Union will reach critical mass in advance of the US dollar.
______________________________________________________
Added August 21, 2010
A picture is often worth a thousand words. Here we have the Percent Economic Growth Rates for three countries: US, Greece, Germany. Note the distinct downturn in the US Economic Growth Rate.
tinyurl.com/25vyea7
Here is National debt as a percentage of GDP in 2009 for the Euro Zone. Look at Greece and Italy.
tinyurl.com/2vvcnxv
Here is Government deficit as a percent of GDP for 2009. Look at Greece and Ireland. Look at UK and Spain.
tinyurl.com/2vvcnxv
Here is the all important Jobs Picture as of March 2010. Look at Greece, Spain, Ireland and France.
tinyurl.com/29grmpy
=================
Added September 29, 2011.
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(October 23, 2011) I added this nice summary graphic of the Dominoes effect associated with the European debt crisis. You can also see the graphic and the accompanying article with the following link:
(October 23, 2011) Guest Post: The European Financial Crisis In One Graphic: The Dominoes Of Debt. From: Zero Hedge, by: Tyler Durden. tinyurl.com/3ulxgmj
The original copyrighted graphic is from Charles Hugh Smith (” 2011) attinyurl.com/ygsa6j
(November 14, 2011) So Much For "Europe Is Fixed": French, Spanish, And Belgian CDS Hit New Records. From: Zero Hedge, by Tyler Durden.
CDS in the core European trio of France, Spain and Belgium just hit new all time wides. tinyurl.com/cfsv433
The CDS costs are a surrogate for risk.
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This post has 102 comments:
http://bit.ly/unjWLp
http://tinyurl.com/7op...
http://bit.ly/sALZzf
"Mon Oct 24 16:33:01 BST 2011 by Dan Ogden"
The comment doesn't negate the importance of the study, after sufficient refinement and iteration, but it should present some doubts as to its immediate applicability to our current situation.
Now, one concern I have about that comment is that it ignores the fact that money under the control of a few institutions available for deployment at their discretion, such as might occur with mutual funds, large wealth managers, ... , regardless of underlying ultimate ownership can be just as powerful as if the owners themselves had made the decisions to deploy in a certain fashion. So the instability and other risks implied by the article, even with it's flawed data points, may be just as real as the article implies.
But an important component of any problem-resolution process is to first correctly identify the problem - the right solution to the wrong problem is an oft-committed mistake. So, the data points used, ownership, flexibility and restrictions on the funds use, ... need to be properly identified and considered.
Nevertheless, and important - I think - article and well worth understanding.
Thanks for the link!
MHO,
HardToLove
####
Here comes something down the pike unforseen; that Germany's Financial Minister predicts Britain will join the euro before long:
http://tgr.ph/w3Qllf
Of course, I did it under the flag of, "This is a nutty idea but..."
Of course, there are elected or appointed asshole people in leadership roles proclaiming stupid shit all around our planet.
It's a new Euro trendy thing...acronymed thusly, "BEEHIVE." Bullshit Every European Helpless Into Vexing Economics.
Ugh! What a freak'n gamey mess.
If the U.K. can negotiate bailing the Euro out with the last vestiges of its printing press in exchange for entering the exchange mechanism at a 25% to 50% discount and keeping the Germans in check, would they?
Remove the currency from the equation for a moment and ask: if England thought they had a way to become the top dog in Europe again, would they take it? what about if it came with the bonus of putting the Germans and the French in their place? Now add currency back in: what if it came with being able to revalue their currency against other European nations at a price of their arbitrary choosing?
Crises create opportunities to make grabs for power. We know the crisis. We don't know who's coming out of this with a power play: England? Germany? China? Russia? Technocracy? Orwell? Not sure yet.
http://reut.rs/ttfh03
Seriousness aside, the best line in the article: "... banks would be eligible for government or EFSF bailouts, which would obviously come with a great many strings attached (one of which is "no more bonuses," which has an effect on bankers that is the equivalent of sprinkling holy water on Beelzebub)".
LoL!
A long read.
http://seekingalpha.co...
There's a link just before comments begin to part 2, but in case you don't get that far.
http://seekingalpha.co...
Part 2 has several charts and data related CDS, yields, etc. with this calming lead-in: "It was an across-the-board massacre on Tuesday. It is no exaggeration to state that the debt crisis has never been closer to getting completely out of hand".
It also has a couple of recordings, the first of which is "cute", being a song popular in Belgium celebrating that they're not French, Dutch, ... The second is a heavy-metal ominous sounding recording tied into the name of the Bundesbank's head, Jens Weidmann, who seems to be standing alone against the wishes of the EZ politicians.
A link to an excellent read about him is provided in part 1, but here it is for your convenience.
http://bit.ly/vVooBv
There are many links in the two primary articles that some may find interesting.
HardToLove
Definitely worth the read, folks. I loved (scary) the charts in Part 2.
"One of three leaders in a new Greek coalition refused to sign an oath that he will approve austerity measures"
He says no need to sign because he can be trusted.
;-))
http://bit.ly/vtcMqS
HardToLove
http://bit.ly/sSrcL2 and
http://bit.ly/uiieej
It looks like the socialists got the boot in the Spanish elections, and a conservative government has been elected.
http://bit.ly/v6pbJi
And "Prior Week: Summary Of The 7 Deadly Sins" that got us here in his view.
http://seekingalpha.co...
HardToLove
Look for non-EZ bonds (except for the three mentioned in the article?) to suffer dropping yields as prices rise. BB may not have to buy any more of our long-dated stuff (Operation Twist). Who knows?
This was one of the links in Wachtel's article, so if you followed his links, skip this.
"Insight: Even Germany not immune to euro zone crisis"
http://reut.rs/tQWOgL
HardToLove
http://bloom.bg/vmomP8
Don't forget they are heavy into etn's!!!
I am sure the automatic "cuts" to be imposed over the next 10 years are just cuts to future increases and not real cuts to present spending so I say bring them on then we can get on with cuts to present spending. Of course congress will not want to make any actual cuts and will try to block these auto cuts too.
These pathetic creatures can not change their spots no matter what disaster their inactivity brings upon our nation!!!
I listened to C-SPAN radio this weekend and that was highlighted as what's actually going on.
I think a rumor of it crept into the CNBC consciousness today - I heard it mentioned.
In short, it's the same old ploy that has gone on for decades: reduce future spending implementations and call them present-day cuts.
What a bunch of bulls**t.
HardToLove
------------------
(November 21 2011) Capital Flight and Forced Repatriation in Europe. From: MISH’s Global Economic Trend Analysis, by Mike Shedlock.
The European Commission is helping Greece negotiate an agreement with Switzerland to repatriate as much as $81 billion believed to be hidden in Swiss bank accounts, a high level European Union executive body official said Nov. 17.
Put yourself in the mind of a Greek who had some savings in a local bank. What would you do? You would do whatever you could to get your money to high ground, and that is exactly what the Greeks have done. They’ve moved billions of Euros to Swiss banks in an effort to preserve their wealth. In the process they have crippled the Greek banks and have added to the downward spiral in Greece and the rest of the EU.
Now a move is being made in Brussels to “force” the Swiss government/banks to transfer all of the assets of Greek citizens back to the Greek banks. For a Greek this means that your money is hostage. It has been functionally expropriated. It will be transferred into a banking system that is fraught with risk. Some portion of the money that goes back to Greece will certainly be lost.
http://tinyurl.com/7apsl9
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No where to run, no where to hide. Desperation? http://tinyurl.com/22q...
http://on.ft.com/uF1niR
And here's an interesting somewhat related follow-up from November 20:
http://on.ft.com/rF0Osz
http://nyti.ms/w5ihUs
Greek gov. encourages it. Now, there is a way around the Euro. It is almost comical...
"Parliament passed a law sponsored by the Labor Ministry to encourage the creation of “alternative forms of entrepreneurship and local development,” including networks based on an exchange of goods and services. The law for the first time fills in a regulatory gray area, giving such groups nonprofit status. "
He also mentioned that in times past the bond yield and spreads have approached or exceeded what they are now, with many yields approaching 7%.
Today was the first day I sold some stock in the brokerage account since putting money back in the market post-Lehman (other than to buy a home), with the idea of having funds available to short the market, and to pick up a little more Axion Power.
Tough call to make to add more Axion, as he (and OyGee) pointed out that if liquidity comes out of the market, the lower priced shares are the first ones to get hit the hardest.
Also talked about is that he does not think the Super Committee will get anything done, which will trigger the ending of the Bush-era tax cuts, which will increase the tax paying base (on the well-to-do) by about 14M people. So, inherently, the tax increase the dems want will occur if nothing is done. But then, what do we do when US tax reciepts only cover entitlement programs? Are we on the cusp of a huge decrease in military spending, as well as many other programs?
I love this in principle (cutting spending), but hate what the potential ramifications are for my long BA.
He is looking into which shorting mechanism he thinks will be best for my investing style. If/when we decide to short the market, I will get back here and let you kind folks know.
We (globally speaking) better prepare for a bad 2012. Maybe the end of the world party will be about the end of banking/taxing slavery forcing all of us into financial slavery. Just as soon as we chew through the chains. It wont be pain free.
http://bit.ly/uYNfvj
The sewer system bankruptcy process showed that it can work if TPTB would get their sorry a$$es out of the way and let the system of "rule of law, not of man" work as it was designed.
Of course, since TPTB really were the cause of a majority of the ills, how could we expect them to behave differently than they did?
MHO,
HardToLove
http://bit.ly/vd7tW4
Obama has helped to accelerate this phenomenon by opening the doors and showing the world America does not want to lead anymore and will rather align itself as a peer to the rest of the world powers. (I wonder if it felt the same during Carter's administration? I wasn't old enough at the time to know much about that time period.)
I believe the EZ countries would want to break up before a full-fledged recession. Is this correct?
My question is if the EZ does break up what does that do to equities in Europe? IMO, most investors have begun pricing in the break up already and I have been reading that their are bargains in stocks in Europe?
Thoughts?
Full text: http://on.ft.com/sXOVGY
I'm surprised he didn't suggest putting limitations on currency bets while he was at it.
"supportive" advice for the EZ and the Euro is just classic Soros misdirection.
Anyone wishing to shadow Soros' current bets might consider shorting the Euro. Also think for a while about the likely repercushions of his "kindly comments" should the ECB actually follow them...
For my part I believe we will be seeing more interest rate CUTS from the ECB, perhaps within the next 24 hours, but soon at any rate. This will work to cut the Euro exchange rate, of course...
The Bundesbank's weak auction sale may be more telling than I thought it was at first. Assuming we are close to a rate cut, or at least that is the market expectation, this retention of over 2billion euros worth of bonds may be just a sign of the anticipated shift not arriving quite yet.
Looking at the key players, Germany's exports are something to watch. Orders were down over 6%, and that's to be expected when so many of their captive markets are struggling. There is some expectation that a weaker Euro (down from 1.35 to 1.33 right now) will help make German exports easier to sell, but that assumption has conflicting levels...
First, the cut in value of the Euro is not really all that significant. Something closer to 1.20-1.25 would be necessary to see a big change...
And even then, the NATURE of Germany's primary trading relationships means that they might gain exports outside the EZ, but would see LOWER exports within the EZ (and the EZ is their largest market). So a cheaper Euro is a doubtful tool to address their problems.
So I expect to see a number of simultaneous attacks leveled upon the EZ crisis:
The ECB will start to act more like a central bank and less like a tool of ideological change. They will crank up the presses, and start printing Euros. They will expand their portfolio (probably by a large factor) and the EFSF.
The IMF will get involved in the PIIGS much more than it currently is.
The EU will push through full EZ membership for the probationary nations currently finishing their trial periods, adding the equivilant of another Italy to the economic coverage of the Euro.
The US will backstop Europe, particularly French banks, and provide dollars in a never-ending stream.
BUT before all this comes to pass, the political pain levels in Berlin, Paris, and Brussels will have to ratchet up several more stops.
-----
Looks like the Dexia Bailout is going to have to be renegotiated and France may have to take a larger share of the bailout responsibility. This is likely to put pressure on France’s AAA credit rating. Dexia's loan portfolio alone is larger than its home country's entire economy. Apparently Dexia is larger than Lehman.
http://tinyurl.com/c34...
---
One problem here is that France is determined not to loose its AAA rating. That means they are going to be highly reluctant to step up to the plate. Dexia is a major player in the U.S. $2.9 trillion market for municipal debt.
France and Germany have long opposed this direction, but if this is more than window dressing it could lead to a breakup of some of the largest EU banks: http://on.ft.com/tGmwOq
Something to think about
http://bit.ly/t2lS9g
http://bit.ly/uEwiKY
http://bit.ly/tIhUz6
"Does anyone know where I can buy a pocket Mayan calendar?"
I always liked Jeff's doubting opinions of what the MSM was spreading; probably why he got fired.
Maybe some of that bond money which did not go to buying bunds is buying equities today...
Best 12 minutes I spent yesterday catching up on the EZ was this 12-minute Bloomberg interview with Steven Major, global head of fixed-income research at HSBC. http://bloom.bg/tjo9oz
He crystallized many of the inter-dependencies weighing on Germany's sovereign-debt contagion risk and proposals for a common euro-area bond. He reminded me of how many critical issues are still in limbo:
1) Bank recapitalization
2) Greek bond haircuts
3) EFSF execution
4) EZ fiscal rules and fines
5) ECB role, etc.
Bottom-line = no ONE silver bullet although he makes a strong argument for the benefits of a common euro-area bond.
The best news in this interview is his conclusion that the recent US Super Committee failure is nothing to lose sleep over – because US sovereign risk has not yet been “creditized.” He maintains that the UK and the US have risks of inflation, interest rates, and currency risk – but not “creditization” risk as the EZ now has.
After listening to this interview and the Merkal/Sarkozy/Monti assurances yesterday that all can be solved with amendments to Treaties – I now believe that today's Telegraph headline about “Death of a currency as eurogeddon approaches” may no longer be overly dramatic: http://tgr.ph/tpciEv
If not, maybe they shouldn't be considered "elitists" any longer, but "overly-powerful, well-off, overly-educated (if the application of the "education" is to be judged by results), and inept fools".
And we certainly can't consider them wise if what my father told me once applies: "A smart man learns from his mistakes, a wise man learns from the mistakes of others".
Thanks for the links! Quite valuable.
HardToLove
http://yhoo.it/rqGyow
http://yhoo.it/sHM3XV
I believe this is happening as we speak.
WHAT they will do is yet unknown, but I believe they will stop well short of fiscal union, but move in that direction via a new set of rules and regulations for the EZ. I also suspect that this new set of rules will (for the first time) include actual punitive measures and a formula for expelling nations who don't follow the guidelines.
The IMF is already moving to backstop some portion of the problem, and the ECB will (as perhaps the first move in re-writing the rules) see its mandate expanded to include supporting the common currency under conditions such as those involving sovereign default.
I saw seperate headlines which mentioned governments issuing guarantees backing 2Big's against runs and liquidity crunches, and including a tacit guarantee to bail them out at some point should that prove necessary.
Monday could be very interesting...
When the Euro "crises" abates, whatever is left will have an aggregate lower risk in traders' and investors' eyes and we can expect the "safe havens" to be abandoned rather quickly as money again seeks yield in a (perceived) lower-risk environment.
That leaves the "bond vigilanties" with a lot of either high-yield bonds (maybe?) feeding their coffers or lots of on-hand cash.
They might decide that the U.S. makes a good new target due to the uncertainty of any actual austerity coming to fruition in the near-term. I don't mean cuts to only planned future expenditures as is currently implemented or envisioned - and even those are at risk as we have a whole year for congress to do the usual and decide the "automatic cuts" weren't such a great idea and rescind them. I mean real cuts to actual expenditures.
Will there be any better targets then? I don't know.
HardToLove
The ECB is going to be depreciating the Euro like mad.
Right about now my thoughts are turning to China. Will Beijing continue its glacial pace increasing the value of the yuan as their #1 customer sinks into recession and starts depreciating the Euro? WHILE China itself entres a slowdown of its overheated economy and skirts its own recession along with massive industrial and construction sector layoffs? WHILE they are seeing high inflation of food?
I don't think so. More likely they will respond by reversing the yuan, makiing it cheaper to support exports and industrial production, regardless what trading partners in Europe and the US might think.
Anyway, that let's them do the other things, which might be inflationary longer-term, without having to worry about civil unrest immediately. Time is a valuable resource and if they can buy that they might be able to wriggle out with the minimal damage from the (apparently) conflicting demands they face.
If that plays out, I think the U.S. comes under pressure again as China shifts output target from EZ to the U.S. as we at least have some growth projected and we have a strengthening dollar (short-term) until the EZ resolves. No matter how they slice it, it seems they won't be able to easily dump their dollar assets and they will have a longer time-horizon until the Yuan might be considered a stable trade currency (I presume that they weaken again as you suggest and that casts a short-term pall upon the currency as a USD alternative). Imagine the chagrin in those countries that recently agreed to trade in YUAN as they see *their* holdings depreciated as if they were USD!
HardToLove
Of course, central planning is an "advantage" that cuts both ways in these situations. Since there is no counterparty to argue with in a democratic setting, the government can act swiftly and with no checks on their power... Including their ability to screw things up. Sometimes the delay inherent in a functioning democracy IS just a longer time period to decide to do something smart. And "gridlock" is not always a bad thing (sometimes the right thing to do is "nothing").
What I see is a persistent and almost infantile faith being placed in extremely hard-boiled Communist apparatchiks to make superior decisions advantageous to Western investors. I would suggest that when this happens it is either pure chance or the side-effects of their determined pursuit of their narrow geopolitical objectives...
Wash your mouth out with soap! Can you even imagine *our* government believing such a thing is even reasonable to consider anymore?
It's been decades since we had that government.
I feel certain that it won't be too long in the future when they will decide that I am not capable of counting my panels of toilet tissue to satisfy my immediate needs and they will institute some sort of ...
Joke, joke!
HardToLove
a) the euro collapses
b) their is epic global money printing
Article: http://bit.ly/ucCLfs
(Harris Kupperman is manager of the Praetorian Capital hedge fund and CEO of Mongolia Growth Group)
I hope he's right... not because I'm looking forward to whatever comes next... but I'm ready for the next step in this process already and I am tired of the hand wringing and the waiting.
I couldn't agree more, Jon. But politicians' define their job nowadays as putting off the inevitable. I think they call it something like "maintaining current levels of prosperity." It's all hogwash, of course, as they're just trying to keep things from falling apart on their watch so they can lay blame on the other guy. I don't blame those European leaders who are stepping down now for getting out before the fall. They just have to hope that those who remain in office can keep things from falling apart for long enough that the deposed can point fingers at those who took over from them. Those taking over shouldn't put it off because, if they do, they will lose their scapegoats.
The market is irrational and driven by emotion and fear. A global pullback, especially one that affects China, will most likely affect Mongolia as well. This scenario may present a once in a lifetime opportunity to invest in Mongolia. Europe is going to have stagflation for many years to come. Like Harris Kupperman said, it is unlikely for politicians to allow the debt and malinvestments to reset and start over from the Dark Ages. The over-pampered and spoiled Europeans would not be able to stomach it either. The only option left is to PRINT, and print a lot over the next decade. Europe will probably suffer a worse fate than Japan did over the past twenty years.
With that said, long emerging markets, especially frontier markets like Mongolia. I completely agree that if one were to invest in Mongolia, a good portion of his/her portfolio should be in real estate. For the more conservative investors who want guaranteed income from interest, it would be a good idea to put money in a few banks such as Khan Bank. I am strongly considering about providing such a service next year for close acquaintances and friends.
A growing group is strongly proposing that the Fed bail out Europe.
Read the article. These guys are serious about this...
I must be more tired than I thought. Or hallucinating. And they are laying this idea at the feet of Milton Friedman, of all people!
Friedman must be spinning in his grave.
----------------------...
To Brad DeLong, the Federal Reserve is a magical fairy with unlimited supply of wealth and capital. Like Jim Rogers said, it's amazing how these people who teach in the most prestigious universities have got it so wrong all these years. Brad must be a secret agent out to enslave 99% of the American people. There is no other way I can explain how he can be so wrong. I have lived and worked at Berkeley for a few years. Believe me, most kids there are not the sharpest tool in the shed; they have been brainwashed to regurgitate everything that is taught by professors like Brad DeLong.
I see Uncle Milty's casket spinning...like a diamond drill, carving a tunnel toward China.
http://yhoo.it/rEeiDD
LOL, and only the credulous will trust them.
Bloomberg getting in front of the easing to come: http://bloom.bg/vi6nsz
Sean Egan downgrades Italy from BB+ to BB.
Over the past 3 fiscal years, Italy's total debt has grown by 14.3% while GDP has shrunk by 2.4%. The annual government deficit of EUR 68B and the debt to GDP of 119% place additional pressure on credit quality.
Furthermore, Italy will probably have to provide additional support to its banks and will see some pressure on its economy. We expect that Italy's banks will continue turning to the ECB and Italy for support.
In 2012, the Republic of Italy needs to finance EUR 320B of debt (Bonds) and is likely to experience increasing yields and restricted access without external intervention.
As of this weekend the yields on the 6 month notes were 6.5%; rates have been rising despite ECB purchases. Italy cannot support all of its debt." And what is probably worse EJ sees Italian debt/GDP rising from 127% in 2011 to 157% in two years. Indicatively, the cut off ratio for a CCC-rated sovereign credit in Egan Jones' view is 150% debt/GDP. http://tinyurl.com/74g...
http://yhoo.it/u7thar
What may happen then is that the rate on these swap lines is reduced and reduced and reduced, until it is nothing at all. Which we were all promised wouldn't happen. This is basically a back door QE via Europe if it plays out this way. If it does, markets will rally and treasury yields will go up as risk on returns. If Europe does get its fiscal union together during this time frame, then the rally will continue for quite a while longer. If not, we are looking at another mini bubble.
The rally might only last a day, like last time, or it could go on till year end. Unless there are continued rate cuts for the swaps, the rally will be short lived once the liquidity is absorbed by more bad news and the end of the holiday season comes to a close.
Europe failed to reach any debt crisis decisions today and have delayed action for 10 days (until December 9). They don’t have time to deal with treaty changes and closer financial integration. Italy is in serious trouble now. Required yields are now well above 7%, some are in excess of 8%. This is unsustainable.
The market was up mightily today and I had some good movers. But, I don't feel safe, and with good reason:
http://bit.ly/tGuyAK
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