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.
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Published on: Tuesday, September 27, 2011
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