Why did the stocks markets close 4% higher for the week?
Sometimes, when enough folks are positioned for the world to end rapidly, the mere suggestion that it might occur gradually is enough to energize the bidders.
In other words, bad news can be good news if you are expecting worse. And stock markets are priced based on expectations of the future.
And expectations were extremely low going into Wednesday's EU leaders summit.
Yields on Italian debt continue to blow out, which is obviously a pretty ominous sign for the success fo the contagion-stemming measures announced last week.
And therefore it's not surprising that markets are selling off across the continent.
- Italy -1.1%
- France -1.4%
- Germany -0.82%
It's the second day of selling since the talks concluded late last Wednesday.
US futures are falling solidly as well.
"The danger to America is not Barack Obama, but a citizenry capable of entrusting an inexperienced man like him with the Presidency. It will be far easier to limit and undo the follies of an Obama presidency than to restore the necessary common sense and good judgment to a depraved electorate willing to have such a man as their president. The problem is much deeper and far more serious than Mr. Obama, who is a mere symptom of what ails America . Blaming the prince of the fools should not blind anyone to the vast confederacy of fools that made him their prince. The Republic can survive a Barack Obama. It is less likely to survive a multitude of fools such as those who elected him"
At the moment, inexorably higher. Last week's EU summit, which prompted a huge "risk" rally has provided no help whatsoever on the anti-contagion front.
Italy's 10-year is now up to 6.07%.
The spread between it and Germany is obviously up as well today.
Now that the market has turned on Italy, it could also turn on France and Germany, which have relatively bigger off-balance-sheet liabilities.
The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail – even if last week's measures bring some short-term relief. There is minimal confidence that governments can turn this around. If investors believe the governments in Spain and Italy are bust, then Germany, France, and not forgetting the UK and US, are far, far worse.
Italy never 'enjoyed' a boom to suffer any bust. And on many measures, including reputable attempts to take account of off-balance sheet liabilities, Italian public sector debt fares well on cross-country comparisons (see chart below). These off-balance-sheet liabilities will now increasingly become visible to all. Who then will be really bust?
Goldman's own proprietary Goldman Sachs Analyst Index does not reflect the modest cheer that people are feeling about the economy.
Remember, this past week, Q3 GDP came in at 2.5%, nearly double the pace of the previous quarter. And the stock market has rebounded sharply thanks to a surprise string of stronger-than-expected economic data.
But don't get too excited.
The GSAI fell 0.9 points from 43.3 in September to 42.4 in October. This is the third straight decline since July, and the second straight month that the headline index has registered below the 50 mark (a sub-50 reading implies that more analysts see contraction in their sectors than expansion). Consequently, the 3-month rolling average dipped below 50 to 45.8 for the first time since September 2009. Declines in the headline index contrast with the small improvement in the September ISM manufacturing report (see Exhibit 1) as well as other reports such as the Philadelphia Fed survey and today's third-quarter GDP release.
It was always inevitable, on a finite planet, that there would be a limit to economic growth. Industrialisation has enabled us to rush headlong toward that limit over the past two centuries. Production has become ever more efficient, markets have become ever more global, and finally the paradigm of perpetual growth has reached the point of diminishing returns. I HOPE YOU GET THIS!