As the world holds it breath for Friday and the start of the London Olympics, I am preparing myself for two potential and expected disappointments. The first is that the European Union or eurozone leaders won’t come anywhere near Olympic gold in their handling of this new Spanish debt challenge, and second, the Poms are, in all likelihood, in for a great Games with their gold medal count expected to beat our total.
In market analysis, the trend is your friend and the Poms are on a sporting roll with the London fever inspiring their cricket team as well as Andy Murray to the final of Wimbledon. Plus they just won the Tour de France coming in first and second!
This is ominous for the Olympics and underlines the value of inspiration. This is sadly lacking in Europe as it faces its nemesis — eurozone debt and the conflict of individual nations trying to hold together a union based on bad foundations.
The trigger was a request from the region of Valencia for a bailout. This raised the question — will the whole Government be next?
The issue led to a spike in bond yields to unsustainable levels and the Spanish stock market lost 5.82%. Other major markets in Europe only lost 1-2%, but the warning signs are there and it puts pressure on European officials who have choked so may times I refuse even to compare them to Aussie golfers!
Only on Friday the eurozone approved a 100 billion euro Spanish bank rescue plan but the new fears have KO’d any positive from that piecemeal measure.
The value of a good measure to fix the debt challenge came when the European Investment Bank — the long-term investment arm of the European Union — announced 1.4 billion euro worth of loans to struggling Greek companies and as Perpetual’s Matt Sherwood pointed out, “partly reduces corporate Greece’s short-term funding risk”.
This uncertainty out of Europe was one of the reasons why while I could see a short-term rally a few weeks back, (which turned up), I couldn’t give it a long-term thumbs up because of these festering European problems.
I think we’re entering an important test period for the EU leaders and if this Spanish bailout drama is not settled quickly, then stock markets could drop off like we saw last August and September last year.
I cannot believe that the Yanks aren’t working behind the scenes with the likes of the International Monetary Fund (IMF), the European Central Bank (ECB) and individual key European countries to expedite a fix as another stock market collapse could not be good for President Obama’s re-election plans.
As an economist, financial planner and financial commentator who has been in this game for over 35 years, I hate trying to construct money-making plans resting on the short-sightedness of uninspiring political leaders who won’t face the brutal truth that more has to be done to solve Europe’s problems.
I contend that the USA and China are well placed to make a good economic comeback but it needs a credible eurozone solution. If that happens, I expect a massive bounce back of the stock market but when it happens is in the laps, not of the gods, but a bunch of second-rate nincompoops in Europe.
Until then, I remain a buyer of great companies paying dividends whenever there are big dips in the market.
If these guys were competing at the Olympics there would be no gold, silver or bronze for them! I’d give them wood and I know where I’d love to jam it! Excuse the French.
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