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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Warning- massive euro zone equity rally alert

Posted by Sada Mosler on June 26th, 2010

If I’m right about the ECB having moved to support the debt of the national governments as well as the banking system, look for a blow out equity rally as markets come to understand this new policy means the national government solvency issues are over.

A muddle through economy is sufficient to drive an equity rally for a market that’s pricing in a relatively high probability of default risk.

9 Responses to “Warning- massive euro zone equity rally alert”

  1. Tom Hickey Says:

    Looks like the bankers blinked first.


  2. Gold hits new record Says:

    [...] The Center of the Universe » Blog Archive » Warning- massive euro … [...]

  3. zanon Says:

    Haven’t most Euro markets already bounced back (except maybe IBEX) from lows, just like US equity?

    The purchase here may be Greek Banks.


  4. jorge rl Says:

    That would , or could shift the “reserve” currency at last. If we stop deficit spending here in U.S. because of the political fear of “all that debt”, our economy remains weak we reduce our imports, move to a balanced budget etc. When Euro nations become net importers because of their strong currency …China ends up with all their “debt” and so on and so forth..


  5. warren mosler Says:

    I’m thinking the euro will tend to get high enough to keep trade relatively balanced and work against the kinds of gains in imports you are alluding to. Whatever level that is.

    Looks to me Trichet has been crowned emperor in history’s largest back door power shift to date.

    The ECB now controls solvency and fiscal policy for all the euro member nations to the degree it desires.


  6. mike norman Says:

    Interesting, but I’m not sure if I am buying it. Solvency was a huge issue, it’s true. They may have solved that, but growth is now the issue with austerity coming. I don’t know if that’s bullish for stocks.


  7. Symmetry Capital Management, LLC » Double Dip or Muddle Through? Says:

    [...] industry on the one hand, and “money interests” on the other. Mosler has also keenly observed that if the ECB does in fact fully backstop eurozone government debt, this could be rather bullish [...]


    Not a bad call, if i must say so myself.
    And no one yet seems to attribute the rally to the fading default risks.



    Mr. E Reply:

    :) Very, very nice.

    Not sure this is over either. They haven’t stopped the buying yet.

    With summer officially here and high corporate profits being reported, we could have a few big upside days as momentum traders continue to pile in.

    And if the Euro keeps going up to a point where people start to think it is viable, it could be another 10% for the DAX…


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