Sunday, 7 November 2010

European Periphery Trouble Round II

In May 2010 it was labelled a "bailout of the Euro", which it clearly was not. Markets anticipated a US style QE which is what put pressure on the Euro back then. In reality it was a bailout of European banks that were and still are large holders of Greek, Irish, Portuguese etc sovereign debt. As immediate debt monetization was avoided, the Euro rallied vs most currencies in the aftermath throughout summer 2010 and has hit its best levels last week on the back of the FED's QE2 announcement. TMN has come to the conclusion that after all the timing of QE2 might have been picked in a rather clever way by ZimBabaBen and the 40 thieves. With the pressure on the Eurozone mounting again, as sovereign spreads are blowing out, the focus of the market's attention is likely to shift away from the USD. As TMN has been pointing out for a couple of weeks now, a major turn in the USD seems more and more likely. The technical set up has been the strongest in years. The European periphery troubles might be the catalyst that finally will push the USD higher and international equity markets lower.

The Greek stock market index has been consolidating on low levels for a while and now looks ready for the final push into the land of darkness. TMN is expecting a hefty decline that will probably last into mid 2011. It is TMN's deepest conviction that it would have been best for Greece to default long time ago and default within the next 6 months remains TMN's base case scenario for Greece. German officials have spent most of last week managing market expectations in anticipation of what's coming next. 

Of course it is not only Greece that is in trouble, Spain is where the big trouble will come from, trouble that has a good chance to impact availability of finance across Latin America severely.  The IBEX chart below looks clearly broken.


  1. No-one is talking about Spain and today, Monday 8th, down close to 200.

    The canary that looks like it needs nailing to its perch lol.


  2. Hey B
    i think 84 pts of the drop come from some stocks going ex div, so it's not too spectacular today in equities. sov spreads blowing out though massively! there is more to come...