So much to write about and so little time!
I’ve thought for a while that the Euro doom-mongers have been underestimating the sheer political will behind the project. Ultimately I believe the Euro will survive, but whether or not that will include the debt-afflicted countries remains to be seen. I can’t see how an inevitable Greek default will result in anything else other than their withdrawal, but perhaps I am wrong about this.
I was very surprised at the strength of support Merkel was able to gain from the Bundestag yesterday. She is in charge of a very weak Government, whose margin is thin. Even so 435 of Germany’s 528 members of parliament voted in favour of expanding German participation in the loan guarantee scheme to E211bn from E123bn.
This event increases the likelihood that Greece is going to manage to get its next payment but this surely can’t be the answer. After all, the first E123bn hasn’t worked. The Greeks have been unable to engage in significant reform and, frankly, have lied a great deal. They are not a good partner and I wonder how yesterday’s vote is going to affect German voters.
I just can’t call how the market will react to the Greeks receiving the next tranche of loan. My feeling is still bearish as this will not represent a true solution, but so far the stimulus rally is proving to be resilient at current levels.
On that thought I came across this article. Leaving to one side I found this author’s view intensely stupid, it did remind me to do something. I took a look at the Dow Transportation Index and it is true it hasn’t rallied at all. What the author of the linked article missed is that the current rally hasn’t broken out yet. The market has been trading in a weak range so to say Dow Theory is dead is just wrong. If this rally breaks out above about 11,650 and the Transport Index fails to rally, then possibly such a claim could be made (but I would be loathe to make it). Continue reading