Global financial markets are cheering the European Union’s $1 trillion rescue plan. (Cynics might call it a $1 trillion bribe to the markets, but I’d never join in suggesting that.)
The goal was to produce a plan that awed the markets with its sheer size. For a day at least that has worked.
The plan bundles together nearly $1 trillion in loans, loan guarantees, promises of guarantees, vague pledges, and backstop bond purchases from the European Union, individual European Union governments, and the IMF (International Monetary Fund.) In addition European Central banks have joined in by buying government bonds on European markets this morning. It’s that actual buying by European central banks that seems to have convinced the markets that the European Union finally means business by putting actual cash on the line instead of politicians’ promises.
So how are the markets reacting?
In reaction FTSEurofirst 300, an index of top stocks across European markets, jumped 6.5%. European bank stocks soared. The IBEX 35, Spain’s benchmark stock index, rose to its biggest gain on record. The euro was up 3.7% against the yen, the safe-haven currency of choice in recent days, as of 7 a.m. in New York.
Futures on the Standard & Poor’s 500 rallied to their limit. June contracts on the index were up 4.4% as of 9 a.m. in New York. NASDAQ 100 futures were up 4.2%.
Of course, it doesn’t hurt that the market was down so far last week that many analysts began this week calling the indexes oversold and due for a bounce.
Jim, I’d appreciate hearing your views on the health care sector (and/or subsectors). I’ve heard various analysts say it’s a good sector “going forward.” What do you think?
Taking from Peter to pay Paul — When you need a score card to ID all of the Peters and you’re not quite sure who the Pauls are – its a difficult game to call.
Greece is a real problem. The political enfranchised are so corrupt with the wealthiest, for years, having paid no taxes. The riots in Greece will not stop when the thumb presses more heavily upon the dissenfranchised while tax fraud goes unchecked nor will the Will to maintain the EU and the Euro continue for long as the Euroized debts eat away at the value of the Euro. How long will the engineer in Germany and the baker in France be willing to pay taxes underwritting the “bailout” while many in Greece live beyond their means; the the wealthest of Greeks continue to pay “zero” takes? The unending story of taking from hard working Peter to pay for the lust of Paul – several members of the EU (PIIGES – don’t forget England) will go on at least for a while.
The TARP and the Fed has purchased time at an unknown cost. There have been Credits to stimulate and foreclosures “abatements”. Mark to Market remains suspended possibly to maturity But there is a tax base that is, can, and will be tapped in the US.
For the US and EU to escape this quandry we need a robust Global Economy with low inflation – Wonderland has too many Mad Hatters
Is this the rally to bail out from the market before summer?
bobisgreen–
I know this is not a political blog, but how many bottles and rocks did you ever see thrown at any of the tea party rallies?!
I think it was a foregone conclusion that a bounce would happen. The question remains how much and to what extent sustainable. Ed’s right. The greek version of “tea parties” ala bottle and rock throwing contests are in full swing. Remember, the markets are nervous like June brides are. It won’t take much to put a pin prick in the bounce. Too, I suspect a lot of nervous investors went back to the sidelines, caring very little how solid our recovery appears to be. Psycology, via the VIX, isn’t in favor of buyers…so come on…get out there and BUY something…maybe a 1000 shares of well, how bout whirlpool?
Ed is right and they still haven’t solved the solvency problems of sovereign debt. With slowing GDP growth and slowing China debts will eventually catch up. Austerity will hurt growth and growth is needed to get out of this.
Great… hope I get enough of a bounce in a few stocks that I can sell and generate cash.
Off topic: Here is an article on RIG, which I almost purchased last week, but increased my DO position instead.
http://online.wsj.com/article/SB10001424052748704307804575234471807539054.html
Yet, they still haven’t resolved the political issues. The Germans don’t want to pay for this, and the Greeks don’t want to make the cuts necessary.
Any bets on when the next Greek riot will take place?