Although the media and the market seem less-than-sanguine about the European news today, I am of a different mind. The German parliament passed the draft resolution. Thus, a potentially huge obstacle to a final agreement has fallen away. Yes, the devil always hides deep in the details, but finding the devil is the last step in this phase of seeking a comprehensive resolution.
Now it will come down to how much investors will take in losses, how much capitalization banks will need to ensure continuing liquidity, and how much budget “fat” Greece, Italy, and Spain will be forced to trim. This is the short-term phase, the phase in which contagion is prevented and a fragile stability is formed. The longer-term phase is the political and legal restructuring of the Eurozone to prevent this from happening again. Restructuring would give legal and political power to overarching bodies so they could deal with countries (states) that behave fiscally badly. This process has been ongoing for some time, and it will go on for more, given that none of the reforms will be in place until 2013, at the earliest.
In any case, the “big” announcement about the grand plan is still to come. In this moment, however, the market is digesting what the Europeans have produced so far, but it appears no matter the details, a contagion “net” of some sort will soon be in place, or, at least the perception of a contagion net will be in place.
I came across the quote below, and in its context, it suggests negative sentiment about the global economy, the U.S. economy, and corporate earnings. In fact, it implies that if Europe were not hogging the headlines, the market would see the emperor is not wearing any clothes.
So in some ways, perhaps, it is a blessing that the market has had something else to focus on during the early days of earnings reports, because if Europe is able to even temporarily get the spotlight off of it’s debt crisis, then investor attention will swing elsewhere. And when you think of what a deeper probing of U.S. or Chinese economic data might reveal, the camouflaged quarter starts to look pretty good.
Camouflaged or not, Q3 is turning out to be much stronger than most analysts and pundits predicted it would be. We won’t know for sure how strong (or not) until tomorrow when the government announces GDP numbers, but those numbers are revised up to three times, so whatever we get tomorrow should be seen in that light.
Lastly, I so wish the European crisis behind us. There is so much else to talk about regarding the global economy and the market. Inherent in the economic/market discussions are opportunities to make money, which is, ultimately, why any of us do what we do in the marketplace. It just seems that for so long now (2008, 2009, 2010), especially the last four months, the market’s eye has been cast upon the roiling sea of crisis, whether it is Europe’s debt or the U.S. threat to default on its debt. OMG, did I just raise the specter of the next market churning Just when I was releasing a slight sigh of relief about Europe, up pops the U.S. debt “tribunal” now coming into view. OMG is just about right …
Trade in the day – Invest in your life …
