The Bailouts' Rally - Lunatics Have Taken Over The Asylum

Just when you thought you could assess market fundamentals and macro shifts properly, Spain finally relented and asked for help. What's important was the "speed" the Euro finance ministers agreed to a 100 billion bailout for Spanish banks. Spanish and eurozone officials announced their intentions after a three-hour emergency conference call on Saturday. Spain will be the fourth - and largest - member of the 17-nation eurozone to receive outside help as Europe's debt crisis marches on.


However, there are important takeaways from the weekend's events:


a) the speed to which the finance ministers agreed to the 100 billion euros shows that the whole machinery is very desperate, Spain has been unwilling to seek help, either because of ego or an unwillingness to admit that it is actually closer to Greece's situation, the fact that Spain relented showed that the EU is willing to twist arms to just pump funds to get themselves out of the dire situation


b) throwing money to the cauldron seems to be the strategy from hereon, next IF the media and investors were to start frowning on Italian bonds or Portugal's fundamentals, the EU will make them take money again 


c) this shows that Germany's influence may be waning in trying to get to a more sensible structure to get out of the crisis, this certainly does not look like a plan Merkel would approve, which is why only France's PM came out to say it was all good, Germany's tough nose approach may be yielding ground 


d) so we can expect equities to rally till the next country problem crops up, then they will throw more money again because the hard nosed approach of "budget cuts, haircut deals, more and more downsizing" seems to be not going down well at all with the citizens of those respective countries, political survival seems to have taken on a stronger hand, you cannot have governments for respective countries to be kicked out while getting through this mess, as Greece has shown


e) the Greece issue is a non event almost, markets have discounted that the upcoming elections will favour the party which will throw out the "austerity deal", which makes for a 99% likely exit from EU by year end


f) throwing massive funds at the problems would be akin to the US strategy except that this is not really a reserve currency, the euro will stay very weak for a very long time


g) the bigger issue why they took the step was the multifaceted bonds issuance and reissuance by Italy, Spain, and other troubled nations, they yields are gap-ping up each time, if EU waits, it will get to 8% or 9% to refinance, which will trigger massive anxieties, bank runs and capital outflow, hence the 100 billion euros basically was a pre-injection to ensure that these countries' future bonds will be "welcomed"


p/s the lunatics may have taken over the asylum, but were there other alternatives, really?

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