The eurozone headlines are blasted everywhere, and in large bold print. But to finance geeks such as myself, and undoubtedly to all of you at home trying make sense of extremely complicated developments in real-time -- quick, what is an ESM? -- there is some disappointment in what EU gods have shot back down to Earth.
We have sat back in the past week and watched as the Thursday-Friday summit was built up as a life or death moment for the world's financial markets. The market's desire was to get its hands on resolution plain and simple, unconcerned with the details, of course. The news during today's session and the weekend reads will likely not be able to explain just what the hell is going on in plain English, so allow me an attempt.
Setup Prior to Summit
The market wanted the independent ECB to accelerate the pace of its bond purchases, becoming the lender of last resort, so to speak. (The term "financial bazooka" must be retired, joining "green shoots," for there was never any dollar amount attached to it -- all it did was spark expectations of a grand deal.) Bullish sentiment improved in the last week and is now back to a point that has precipitated second-half 2011 mini corrections in stocks.
What Europe Put on the Plate
- Details, details and more details that were not discussed at the onset for investors to digest and make decisions upon beforehand.
- EU assumes the role of abusive, growth-inhibiting stepparents. The market only thinks that it wants the EU to prevent the next debt bust and address the currently tattered bank/sovereign balance sheets. Let's be real: markets love a good asset boom driven by profligate spending, but presenting budgets to the European Commission, with countries reporting in advance their borrowings, and sanctions for evildoers essentially caps the growth potential of the EU. Not only does the EU have to right its wrongs built up in the system since 2007 but it may be unable to inflate its way back to healthy growth rates that brings down prior debts in meaningful ways.
- None of what was outlined goes into effect today.
- The ECB is still playing hard to get.
- Future bondholders get a free pass by not having to share in losses. (So much for free markets.)
Basically, all I see today is more intrusive control by a government body and a defined set of countries that have taken opposing viewpoints (U.K., Sweden, etc.). A fist pump to the U.K.'s David Cameron, who bluntly stated that his country is glad it's not in the euro and will never cede its sovereignty. Honesty is the best policy, and I think Cameron is dead-on accurate.
Parting Shots
- Watch EU bond yields.
- Do not disregard China's next round of disappointing macro data.
- The theme of a Santa Claus rally is in question.
