Déjà vu all over again?

Posted: 30 November 2011 in Uncategorized
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All the major stock indices were up over 4 percent today, on news that central bankers announced they would reduce costs for banks in foreign countries to borrow dollars.

The reaction among traders seemed to signal a belief the euro crisis is over. But perhaps a little history is in order:

Some noted sharp gains in equities in previous trading sessions have often failed to carry through, as European leaders had tried many times over the last two years to stave off a deterioration in the debt crisis. A recent attempt was on Oct. 27, when the broader market as measured by the Standard & Poor’s 500-stock index rallied 4 percent on the hope that a new European plan could solve its problems. But it failed to sustain its gains.

That rally was one of eight times that the S.& P. had spiked up at least 4 percent since the end of 2008, while in the same period it experienced 10 declines of that size.

Is this déjà vu all over again—and again and again and. . .?

  1. Magpie says:

    As I see things, this latest rally (first) should be extremely short-lived, (second) it could actually be counterproductive and (third) it seems utterly irrational.

    Let’s begin from the end: it’s irrational because what the promised liquidity does is to attempt to solve a forming credit crunch, but it does nothing to solve the underlying European problems. In other words, Spain, Italy, Greece, Portugal, Ireland and now to a much lesser extent every other European country is still deep in “this”

    It could actually be counterproductive, because it gives speculators more money to speculate. Again, speculators are not the cause of the problem: they are taking advantage of an objective situation and (this is where they become pernicious) making it worse.

    Lastly, it could be a short-lived rally. Well, after the previous, it’s obvious why this could be a short-lived rally.

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