BarroMetrics Views: Europe Revisited
In EuroZone Crisis, I set out the issues Europe had to address if it were to avert a full-blown crisis. I wrote the piece before the announcement of the package that ‘saved Greece from defaulting’.
In that blog, one of the problems I highlighted was the size of the Italian deficit. I must admit to being surprised to the short-lasting euphoria. I thought it would last to at least Nov 7 to Nov 8. But now, not two days after the huge move up, we have retraced all of the up move!
And the ‘reason’ for this down move?
The Italian ‘deficit crisis’ (see http://euobserver.com/19/32612 and http://www.telegraph.co.uk/finance/financialcrisis/8861179/Italys-crisis-deepens-on-eurozone-slump-bail-out-doubts.html)
I expect this issue to be ‘resolved’ quickly. And the nature of any resulting S&P rally will provide clues to the near-term direction of the market.
That aside, one thing is clear: the speed of market reaction shows that unless some structural solutions are found reasonably quickly, we’ll see full-blown crisis erupt – one that will probably lead to a full-blown bear market for the S&P.