Morgan Stanley's Stephen Roach spoke with Bloomberg's Tom Keene earlier, pointing out the most troubling statistic about recent market activity, which has to do with both the frequency and amplitude of catastrophes: "The crises are coming with greater frequency. Over the last 25 years we have had an average of one crisis every 3 years. The gap this time is 18 months. The scale is bigger. This is a much more serious problem in the eurozone than the Asian financial crisis." So intercrisis half-life continues to decline as the severity jumps exponentially. In other words, in nine months we will need a combined Fed-ECB-BOE-PBoC-BOJ effort for about $10 trillion just to calm the markets. 4.5 months after that, $100 trillion more... And so forth. Enjoy.
Euphoria ends as investors suspect another shameless EU confidence
The euphoria is evaporating. Market commentators have taken a closer
second look at the package, and they start not to like it. In our view
the sentiment was best expressed by what Kevin Gaynor chief markets
economist of RBS who called the EU’s strategy “Bailouts rather than
integration”. They are not solving the problem, they are throwing
money at it. Another appropriate comment came from Marek Belke, the EU
head at the IMF, who compared the rescue package to a dose of morphine
with the purpose to stabilise the patient. The real hard stuff has yet
Most European newspapers opened this morning with the story of
euphoric market reactions, but the hangover already started to set in
with the opening of markets in Asia. After the euro surged against
dollar and yen yesterday, this morning the euro already fell back by
0.3% against the yen. South European bond markets improved yesterday,
but as it turned out the only buyer was the European System of Central
Banks. Market confidence has not yet returned to the bond market.
The consensus comment praised the eurozone’s initiative as a
courageous, but warned that structural problems have not been dealt
with and could trigger more turmoil in years to come. ...
Unless the EU comes up with a plausible strategy – on reform of fiscal
policy, governance systems, and structural reforms – the announcement
will soon be reversed completely. (We think there is absolutely no
evidence the EU is going to deliver a package with the capacity to
impress investors. For the last ten years, the governance rules served
the sole purpose of satisfying national prejudices – see for examples
Merkel’s ludicrous proposals for a strong stability pact).
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