A Few Quick Thoughts On the European Crisis19 October, 2011, 2:23. Posted by Zarathustra
Tags: Economy, Europe, Markets
As I said, the European debt crisis is becoming sickening boring. The story goes on with rumours, denial of rumours, then hope in the market, and rally. In that cause, I have lost count on how many times politicians said they will do what it takes, the number of confidence votes Silvio Berlusconi has gone through, and among many other things.
The Hong Kong market was getting crushed, but the media has seemed to attributed this to a “renewed concern over European debt crisis”. Surely, I don’t think that the disappointing GDP number from China was to be blamed (after all, even though I remains bearish on China, I actually don’t think that the Q3 numbers are that bad), but the European crisis has been the crisis that won’t go away (at least nor so quickly), so I don’t think anyone should really put that off their minds.
Equities have been doing relatively okay for a week or two, the bond market seems to be less convinced. French-German yield spread has reached level not seen since mid-1990s (via FT Alphaville). Italy bond yield is also rising despite bond buying (Chart via Uldis Zelmenis).
Politicians are still struggling. In fact, Greek PM said they were struggling to avoid default. Other politicians are also struggling, as the situation forces them to come up with the solution within weeks, which, in normal time, would probably take a year or two instead. Now we are hearing more haircut of Greek debts, recapitalisation of banks, leveraging EFSF, and the new ESIM idea being floated by Allianz. Whatever it is, the problem is not going away. All those politicking, rumours, counter-rumours, denial, and many other things that have happened and will happen will largely become noise until the problems are resolved (or the problems explode).
Meanwhile, this is where the S&P 500 stands right now relative to the 2008 crisis. So far we have not really deviated from the 2008 financial playbook, but we will keep watching it.