Wednesday, January 12, 2011

So You Thought The Troubles Were Over: Why Markets Shoots Higher Today

Pretty much every single analysts and media outlet had been reporting how the crisis has been contained and how the markets will be fine this year and going higher by 15% or so. Goldman Sachs just said the same yesterday (forecasts 18% gain for the SPX).

Although the market had  a rough first days in 2011, today you'd think all of them them were right. Europe is rocketing higher. Why? The devil is in the details.

Bloomberg reports that European governments are considering help for Portugal, including buying back debt and lowering interest rates on rescue loans and guarantees. They are part of a package to "quell the financial crisis, according to two people with direct knowledge of the talks".

Basically, the markets go higher because the can is being kicked down the road again. Who will pay for it is our children and their children, but the party continues. If you though the crisis was over, please understand why these neasures are being taken.
According to the report, the plan may include a loan to Portugal of about $78B, more purchases of outstanding Greek debt (who thought Greece was fine?).

Costs Rise to Record High
The report also says that the cost of insuring European debt climbed to a record as the crisis that last year led to 178 billion euros in EU and International Monetary Fund aid for Greece and Ireland threatened to claim Portugal as its next victim.

Interestingly, Portugal just yesteray said that it did not need any aid! "Portugal has brushed aside suggestions that it will have to fall back on EU help. Noting that last year’s deficit was less than forecast, Prime Minister Jose Socrates said yesterday that “Portugal will not request financial aid for the simple reason that it’s not necessary.”'

More aid to bring the markets higher, until the next crisis in a few days or weeks.

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