Unwinding the Wrong Action From Yesterday

 | Nov 09, 2011 | 11:16 AM EST
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As usual, when we have these terrible days, my question is -- why aren't we down more? What keeps us up here?

A lot of it is the function of the bad bet/wrong bet issue that has confounded so many. Go back to yesterday. Twenty-four hours ago. We saw the Italian government in disarray and yields spike ... and we LIKED it! The euro was strong, gold was weak, the markets seemed placid.

And the trajectory of the bonds was obvious. Obvious.

We were oblivious to the obvious.

Now bonds go to 7.5% in a heartbeat and now we are recognizing that yesterday's action was wrong. So we have to repeal it. That's what's been going on so far. The grand repeal.

The issue, of course, is what it's worth to us. If things happen with alacrity, then we are going to see that those who have this debt and have borrowed a great deal against it cannot make it through without help.

That's why it is vital right now for the European authorities come up with, not just a plan, but an actual buy of Italian bonds. The yields have to come down, or the speed will, in itself, overwhelm the situation.

If we get the yield stabilized, then I suspect that we are going to muddle through, down another 2%-3%.

But if we come back tomorrow and yields are at 8%, then the speed will cause failures.

Lots in the balance. One thing is certain, though: Yesterday's action was, alas, wrong. Wrong bets. Awry bets.

And they have moved the market too high to withstand this news.

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