Stocks are flying early Friday on the news that euro
zone officials have agreed to lend bailout funds directly to struggling
banks rather than through each nation's central bank. The move has the
effect of taking the governments of Italy and Spain off the hook for
their beleaguered financial institutions by reducing their debt
obligations. The plan also solidifies the unity of the Euro Zone at a
moment
when many questioned its survival.
The deal represents a meaningful concession by Germany which had
previously refused to take on the additional risk of lending to the
institutions directly and as a collective. The loans would be made via
the €500b European Stability Mechanism (ESM) upon the formation of a European Central Bank (ECB) supervisory body.
All of which is nice but what matters to U.S. investors is knowing
whether or not the current rally is strong enough to break through
resistance or just another fake-out on the last day of a quarter defined
by such moves.
Todd Schoenberger, managing principal at the BlackBay Group thinks
today's news means little, regardless of the move in stocks.
Schoenberger thinks this is the best bailout package we're going to get
right now, thus damning it with faint praise. Ever the cynic, he regards
Germany's participation as suspicious. If Merkel is willing to accept
this deal "there must be something else, a ticking time bomb" causing
her to do so. If there is, then the plans announced last night will be
no where near enough to cover the bill.
He's right, to a degree. Obviously the
news from Brussels is no where near a cure for what ails Europe. Rampant
unemployment, excessive debt, shrinking GDP, and a total lack of
clarity as to precisely who's going to pay for what, are questions not
even addressed in today's announcement.
But the lack of such detail is trumped by a directional shift in the
nature of the debate. Germany blinked and is inching towards full
support of the Euro Zone. The notion of a complete collapse is off the
table for the foreseeable future. That alone more than justifies a
rally.
Short at your own peril.
Are you optimistic that Europe finally has a plan in the works that
will amount to real progress? Let us know your thoughts on our Facebook page.(curtsey : Yahoo Finance)
Rupesh Yatesh Dalal
Head Research Department
Head Research Department
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