I have been trying to find a good description of what actually was accomplished in the Brussels all-nighter, and am happy to pass along a link to an on-line summary of a print piece from Britain’s The Economist, which provides a good summary of many of the main points, plus commentary. This is a very mainstream publication, so what it says what it says, it says it not lightly. Here is a quote and a link to the entire (brief) summary piece:
As it is, this deal at best fails to solve the euro crisis; at worst it may even make it worse. As the shortcomings of each component become clear, investors’ fears will surely return, bond yields will rise and banks’ funding problems will worsen.
Yet again, disaster will loom. And yet again, the ECB will end up staving it off. . .
No one is always correct, but if the above represents the considered point of view of such an august pillar of the Establishment, it supports the idea that the knee-jerk market reaction that followed the dramatic 4 A. M. announcement in Brussels should not be viewed as representing an important and durable view of matters that will have any predictive value for the markets in the future.
In support of the above, the financial columnist Ambrose Evans-Pritchard wants to scare us about Portugal. He says that monetary contraction there has intensified and mimics that of Greece before its crisis intensified. Portugal has nearly as many people as Greece and carries a large debt load.
Finally, Mish makes a persuasive case today for an imminent real estate-led economic hard landing in China and concludes as follows:
The property bust is underway in China and will spread from city to city just as it did in the US. No city will be immune and commodity prices will be smashed in the downturn.
Perhaps the most explainable market move yesterday was the move up in the euro not only against the U. S. dollar but also against gold. After all, they eurocrats did not “print”. Instead of Greece going to its own currency (which I jokingly think of as the “drama” rather than the old “drachma”), Greece is being forced to deflate its prices internally in order to compete within the eurozone. The same is true for Ireland and Portugal. Spanish unemployment rose in the last quarter to 21.5%. The ECB’s policy rate is well above that of the Fed’s. If Mish is correct on trend, then the clear driver of the global commodities boom for the last several years, China, is about to lead a change of fortune in those assets. We could see oil much lower, easily into the $60s for WTI, and copper lose at least another dollar per pound. At least on a trading basis, the easiest way for most people to profit from that trend, if it occurs, is with easily tradable high quality bonds, or at least bonds that for now are agreed by market participants to be of high quality, as fears of “inflation” temporarily give way to fears of “deflation”. If that happens, please be comforted: the Fed never believes that it is out of bullets. There is more ”shock and awe” that could come our way from the Fed.