Friday, December 9, 2011

what hasn't happened

There seems to be an emerging consensus that yesterday's EU summit meeting was a partial failure and a partial success - sort of like all the other EU initiatives taken to control a potential banking crisis.

There is an extraordinary conviction among investors that this half -success, half-failure result was too little and too late, that an Euro zone break up is inevitable and will have devastating, world-wide economic consequences. At least that is what I am reading in the print media and getting from on-line sources.

Here are a few headlines I found within minutes of searching on line for reactions to the summit. They are quite representative.

"Europe's blithering idiots and their flim-flam treaty" - Ambrose Evans-Pritchard, The Telegraph (UK)

"Europe's Disastrous Summit" - Felix Salmon, Reuters US

"Eurozone banking system on verge of collapse" - Harry Wison, The Telegraph (UK)

I think I am on safe ground in asserting that a very bearish investment crowd has developed around this theme during the past few months.

The odd thing is that the European stock markets as well as the US market have rallied today - not by a huge amount - but quite substantially. I also note that the Euro-currency has been trading quietly for the past two weeks in a narrow range a little above its early October lows.

This surprises me, and I think it means that the widely accepted view that a European crash is imminent is wide of the mark. I think the Euro will rally against the dollar from here and that European and US stock prices will advance well above their late October highs.


  1. The volatility nowadays is crazy. At this stage, a 5% gain for the year can be easily wiped out in a day's trading....not sure that this means for the S&P which is now above MA50?

  2. We are VERY close to your definition of a bear market - a 2% downturn in the 200DMA. I am using 1286.46 as the base.

  3. EU is already very interconnected. There is about 30000 flights every day and both Baltic and Mediterranean Sea have literally thousands of cargo and cruise ships going every possible direction every day.

    So that is why euro as currency works very well in the real economy. The old ways of doing things, was like every state in U.S. eastern seaboard would have its own currency from New York to Florida! Ridiculous and waste of resources.

    That is why the speculative attacks (once again record number of short positions last week) only manage to bring eur-usd down to around 1.20 and after the attack it pops up like a cork in water.