S&P 500 futures were sharply higher after it was announced in the wee hours of the morning in Europe on Thursday, October 27 that a comprehensive deal had been agreed to by the heads of state of the EU.
In the medium term (the next 6 months at the latest), it will become clear that the announced plan will not work.
In the short-term, the situation may become reminiscent of the period from mid 2007 through mid 2008 – right in the middle of the sub-prime melt-down. By mid 2007, it was abundantly clear that given the size of the problems in the mortgage markets, a systemic financial crisis was inevitable. However, this rather obvious fact did not prevent strong rallies in equity markets, nor did it prevent commodity prices from rallying to stratospheric levels. Vague hopes that unspecified government and/or central bank actions would somehow avert the inevitable kept markets buoyant for an entire year before they finally collapsed.
Read Full Article »