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Euro-monster contained?

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by Peter Switzer

On a day when President Obama compared Europe to the monster that devoured the world economy — my words not his but that was the impression left — at long last the Europeans gave us a sniff of hope that they have a credible rescue plan for the embattled, debt-laden Euro-governments and banks.

And didn’t Wall Street like it!

The Dow was up 272.38 points, or 2.53 per cent, to 11,043.86. The S&P 500 index rose 26.52 points, or 2.33 per cent, to 1162.95. But alluding to a good plan, which actually sounds a lot like the US TARP plan I have been recommending for months, is only step one. Step two will be actually delivering the plan, which will have to pass the ‘shorts’ test.

Right now professional investors are adding to our problems by looking objectively at Europe’s pathetic rescue plans and saying: “That will work — NOT!” And as a consequence they are shorting stocks and bonds, effectively sowing the seeds of a European recession that could infect a weakened US economy. That’s why Obama has been trying to give the Europeans a wake up call, albeit a little more diplomatically than yours truly.

The European plan is likely to add support to bank capital and provide funds for a European Investment Bank. But we’re not out of the woods yet.

Germany votes on the EFSF (European Financial Stability Facility) on Thursday, which is an important body in the eventual rescue plan. This EFSF will play a key role if a turnaround sentiment and market uptick is going to happen and if it’s really credible I see a massive rally happening. That said, the Europeans have very poor form on the board to date.

By the way, banks are bound to rocket up if a believable plan happens.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, September 27, 2011

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