I hope you all had a nice Thanksgiving weekend. The market was terrible last week as everyone was worried about Europe. The good news is that despite the uncertainty, Americans went to the mall. This week the markets are celebrating a better than expected start to the holiday shopping season. Investors are not sure whether to focus on global political (e.g. debt) problems or the good earnings performance of corporations.
High volatility is beginning to seem common and political dysfunction is becoming the norm. Last week Greece and Italy replaced their Prime Ministers and this week Spain voted in a new ruling party that promised steep budget cuts and a pro-business platform. Perhaps we will see a landmark election here in the U.S in next November.
Posted in Weekly Insight | Posted on 23-11-2011|
It was volatile again last week with big declines early followed by a nice rally on Thursday and Friday. Once again the European debt crisis was the main story. In Italy, interest rates on govt bonds surged above 7 percent, which was the level where it became apparent that bailouts would be required for Ireland and Portugal. By comparison, a healthy borrower (Germany) can borrow for below 2 percent. The financial condition of Greece, Ireland and Portugal are worse than that of Italy, but Italy is a far more important player in the world economy. If Italy were to require a bailout, it would likely require international assistance. Italy is the 8th largest economy in the world and the 3th largest borrower.