Yesterday, the market collapsed withing seconds by almost a thousands points or 10% , a phenomenon not see since 1987 . While it recovered most of its loses, intraday, one cannot dimiss the importance of such event.
Either it is trading error that cascaded into a "heavy sell" snow ball effect or is it in any case selling and getting out of the market as soon as possible after a very powerfull rally.
In all cases, the economical situation in Europe and globally does not warrant complacency and the risk of a deterioration both economically and politically has never been so high in the past 20 years or more.
Taking huge debt in this situation, at the current moment in time... is just foolish.
33 comments:
Whatever happens it appears the ECB is committed to ensuring the Euro is devalued at the target rate.
The eur/dollar reflect the health of an economy - at this moment in time, Europe seem to be economically and financially slightly bit worse than the US, which anyway is in a dire situation too, but just a tiny bit better.
On top of that, European Stocks have been sold more than the US one...deleveraging in favor of the US dollar.
It is not a policy driven by the ECB. On the contrary, I think it is clear that the ECB will not monetise the debt - they made it clear all along and during the press conference.
On top of that it seems that the ECB wants to readjust the role of finance and put it back to where it should be , a role that has been misplaced during the past 20-30 years where bubble have been created in stock market, housing market...
see :
http://www.ecb.int/press/key/date/2010/html/sp100506.en.html
European banking created this mess. And there is nobody anywhere who can come forwards and provide the leadership that is required.
Greece cannot repay the debts. It has been given no concessions to enable it to repay the debts. Instead crony capitalism prevails where German leaders talk about punishing Greece while their insolvent banks are bailed out.
The ECB is delaying the day of reckoning and the whole damn thing is falling apart all around them.
Maybe by Monday we will have a clearer idea what is going to happen.
Actually Greece will default for sure ... now since History is repeating itself ... Greece is our BearStearns let s find our Lehman Brothers ... may be not Spain ... another country on the list?
Can it really be true that the EU "solution" is to have a tax payer backed fund ready to bail out portugal italy ireland....the whole damn EU???
If they want to maintain devaluation at the current rate they will have to begin buying bonds with no guarantee they will ever be sold again but with the reasonable possibility they could be sold to control inflation.
Otherwise it is goodbye EU and €2000 gold by the end of the year along the way to distruction.
Well the ECB just decided to do "quantitative easing", i.e. creating money from thin air to buy off the bad investments.
This only will make things worse in Europe as it doesn't solve the bad investments it just delays them and ruins the currency further.
This blog keeps banging on about deflation. If there is deflation you can QE without ruining the currency at more than the required ruination rate set by the Central Bank.
Andrew, Regarding your deflation concerns:
Let's Roubini, give his view, which I tend to agree of course as long as the ECB is not lying or plyaing game (google Weber comments for that...):
‘Deflationary Pressures’
Although the package from the governments of the 16 euro nations has calmed markets today, the implications of the plan require fiscal austerity and higher taxes, damping growth and possibly extending economic hardship, Roubini said.
“In the short term, raising taxes and cutting spending is going to imply further recession and further deflationary pressures in the euro zone,” Roubini said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHwLirAaqp60&pos=5
However if the ECB decides to be loose on inflation... then interest rates (3 month/12 month euribor) but will start to rise pretty soon, higher than it should have been...that could shock the market
Duh, the decline of that stock was called by a typing error.
HF
Almost certainly Roubini is not suggesting lower taxes and less spending at this point in time. In fact he appears to be supporting the EU actions in that calming inflationary expectations is part of the process of returning to normality given the massive committments given by the EU to spend money.
@Anonymous - actually that was already debunked as untrue.
The "fat finger" was made up along with computer glitches. I have read that it was due to lack of buyers as those were were buying stocks bid at low levels - and as no one else bid higher the stocks went at those lower margins.
Is this what really happened? No clue. I wait for the SEC, Wall St., etc. to publish their results.
But so far it looks like it was via normal trading that it occurred.
The situation is pretty dire to see how the ECB is reacting and the Euro behaved... it looks like they all have lost control of the situation - not a pretty or rosy picture.
Would that turn into a deflationnary spiral or hyper inflationnary one - nobody knows at this juncture but for surebut do not expect price stability -
Plenty of negativity being expressed about Europe at the moment, but when people recognise the banks are just as responsible as the debtors in my view the situation is more manageable.
It seems to me that HousingFinland and others are a little out of the touch to the current real situation.
When the politics move in and the mega players appear from the background shadow, most doctrines (if not all) of economics are automatically down-graded into trash. Actually, the doctrines have never been that true. It was just those mega players made them looked that true to the public. But now, they don't need them anymore and, they sell out of their box.
I guess it would be helpful to understand the situation also out of the box of economics, at least not completely inside it.
~Here is an interesting extract on an TRICHET interview :
"Trichet refused to comment on the amount of bonds the ECB was prepared to buy.
"We will mop up this extra liquidity again. We've done this in the past," he said.
Trichet also hit out at suggestions that the ECB had binned its inflation-fighting principles with the move.
"We have not changed our monetary policy. All liquidity which being put in through these interventions will be taken back. We are not running money printing presses," he said."
So it seems that the latest move from the ECB was more about saving the Euro area from a total collapse than trying to go toward monetizing the debt ...
The only path seems to be a full integration ... it is really surprising to me that the European Politician have decided to go on that path ...
I am utterly disappointed by the ECB and its decision to buy bonds ... it is like creating some Euro (by borrowing money by issuing more bonds) to buy bad bonds ... at the end of the day, we are increasing the borrowed amount of money ... not good ...
Europe might end up like Argentina ... really bad for us ...
For sure they will buy the default risk bonds and only sell good bonds as required, rather than euro for euro.
Eric,
I don't believe we will end up like Argentina, I think the ECB has made it clear that is created , is destroyed somewhere else ("sterilization" as they call it).
In fact, the seriousness of the ECB and its credibility will depend on that - and they are playing the Euro future.
I do not believe a second that they will take the path of inflation otherwise, they - mainly external lenders (mainly foreign central banks)- will mistrust the Euro as currency and will shun holding euro, at the end ... foreign investment will plummet and interest rates will be out of control ...well it will be the end of the Euro.
Another important fact is that weber, the german head that seems to have voted against it ... could become the next ECB president...
Eric,
I don't believe we will end up like Argentina, I think the ECB has made it clear that what is created , is destroyed somewhere else ("sterilization" as they call it).
In fact, the seriousness of the ECB and its credibility will depend on that - and they are playing the Euro future.
I do not believe a second that they will take the path of inflation otherwise, they - mainly external lenders (mainly foreign central banks)- will mistrust the Euro as currency and will shun holding euro, at the end ... foreign investment will plummet and interest rates will be out of control ...well it will be the end of the Euro.
Another important fact is that weber, the german head that seems to have voted against it ... could become the next ECB president...
All I need to say is Greenspan and Bernanke said the same thing.
"we won't monetize the debt" yadda yadda.
However soon after they did. It is in the government's best interests to monetize the debt as doing anything else risks their jobs.
"However soon after they did. It is in the government's best interests to monetize the debt"
Unless they finally concede the econonomical power to Asia for thenext century to Asia, which I doubt... at this juncture they are playing with the future wealth of the western world.
The ECB is modeled after the Bundesbank which was an inflation fighter during the 70's...the result, today, is that germany is the most competitive country in the Euro zone...all the other have tried (or succeeded) to monetize the debt during the 70's...the result is that they lost economical power and political strenght.
Would they be dumb to take this path...monetizing the debt...I will move to Asia A.S.A.P
Me too, and I think I hear Hong Kong calling..
So far the EU actions appear to have been very successful.
Argentina and Venezeula now have a significantly higher default risk than Greece and the other euro countries are way down the list:
http://www.cmavision.com/market-data
Less indebted countries like Finland will have to find other ways of reducing price rises as the focus goes on supporting the weaker economies
Actually, it is the ECB who created the Greece crisis. Facts:
June 2009: ECB released 600B € liquidity with 1% interest. ECB requires it back by July 1, 2010.
Many banks in EU then borrowed it with their 3-month~1-year bonds (of Greece, P., and Es.) as the guarantee. Then, those banks buy the 10-year bonds of these countries. If nothing wrong, those banks can make 3% "risk-free" profit. But the "unexpected" down-grading of the rating forced the banks to sell their bought long-term bonds before July 1, 2010, or they will lose a lot of money...
ECB and the governments now move in to "control" the crisis with the amount of 750B€, where understandably the 600B is for the liquidity once released in June 2009 and, 110B is for the Greece debt.
You see ECB and the banks are the super thief themselves, while marked as "legal." But, how long they can continue this way?
Well well ... it seems to me that the ECB is entering unchartered waters ...
Ok have to admit that we might not end up like Argentina ...
As a matter of fact, I am currently looking at moving to Asia ... but the news are not that good there either ... those Asian are fat with Cash and their economies are already overheating ... may be not that good afterall ...
Let s come back to Finland ... I am still amazed by the increase of housing price ... how can people be so "...." ???
Euro Vs Dollar ...... which is the best currency to keep your savings? With Euro tumbling down is it a good time to transfer part of the savings in Dollar or is it too late already?
As an aside here, my wife who works for an international American Company, with a Finnish office, selling into Russia, Baltics Finland and Sweden, told me yesterday that orders have ticked up noticably recently, including places like Estonia and from Finlands paper industry sector. Some of these deals have been in the pipeline for a few weeks and others are new. My IT brother in law is also saying there is more new work coming thru.
Other things being equal if the european central banks are buying difficult to sell bonds Banks will be flush with liquidity and people wanting finance will benefit from that. And there is the weaker euro to make exports more competitive. For example the NZ dollar is now very uncompetive for selling stuff into the Euro area and until all of this stimulation translates into measured growth and a stronger Euro, the euro could weaken further as the US Economy strengthens.
So inflation up, growth up in Euros, wages hardly keeping up, employment stabilising for a while to come.
Trichet explaining why the Euro is doomed:
http://www.calculatedriskblog.com/2010/05/ecbs-trichet-most-difficult-situation.html
SPIEGEL: Would it not be good if a country such as Greece were able to leave the euro area?
Trichet: No. This is excluded. If a country joins the euro area, it shares a common destiny with the other members
Give it a few years and the Northern Europeans will be sending Nato to Greece to overcome terrorists and insurgents and protect european democracy.
Wow, Andrew could read a little history. Greece was/is the origin of Europe & Westen way of the game, called as democracy. Do you mean the bankers should later send the NATO fighters to crash the whole Europe?
Anonymous
http://en.wikipedia.org/wiki/Irony
Irony (from the Ancient Greek εἰρωνεία eirōneía, meaning hypocrisy, deception, or feigned ignorance) is a situation, literary technique, or rhetorical device, in which there is an incongruity or discordance that goes strikingly beyond the most simple and evident meaning of words or actions. Verbal and situational irony is often intentionally used as emphasis in an assertion of a truth. The ironic form of simile, irony used in sarcasm, and some forms of litotes may involve the emphasis of one's meaning by deliberate use of language that states the direct opposite of the truth, or drastically and obviously understates a factual connection.
Andrew,
Sorry but it is not irony. It shows the problem actually. Do we have the similar situation in Finland and other "responsible" Euro countries if not completely same? Even more interesting, US, a country with the combined debt of 165% of its GDP, still enjoys the AAAx rating...
Printing cash to get rich has been the norm since 1970s (if not earlier). Stealing legally has not been something shameful since then but respectful. Then, what better can one expect?
...
The "bank - Wall Street" loop is becoming more and more a perpetual machine...
When we compare the bad to the worse, we may notice that it would be a good time to buy € with $ soon.
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