“Chaos is inherent in all compounded things. Strive on with diligence.” — Buddha
Within the span of just three days, the Dow Jones Industrial Average (DJIA) swung from a two-week low to the edge of a three-month high. All it took was for the president of the European Central Bank (ECB) Mario Draghi to say with apparent conviction that he would do “whatever it takes” to protect the Eurozone from collapse.
“Whatever it takes” was apparently translated by Wall Street to mean that the ECB would be participating in some form of bond purchasing program, which is widely regarded by investors as a necessary action to shore up an infrastructure that has recently seemed unable to support a debt-ridden Eurozone.
Over the weekend, Jean-Claude Juncker, the head of the EuroGroup, which is an informal part of the Council of the European Union, strongly seconded Draghi’s sentiment of assurance. He implied that the EU’s European Financial Stability Fund (EFSF) could work in conjunction with the ECB to purchase Spanish bonds, which have recently been soaring over 7% yields, a level that is widely agreed to be unsustainable. Despite indications that Germany might still balk at the ECB’s participation in debt purchase, whether as a primary or secondary buyer, Juncker offered reassurances that Germany, France and Italy have, in fact, all echoed the “whatever it takes” mantra.
To investors and EU observers, it might seem that these sorts of promises of unity have come out from the region’s leaders on a multitude of occasions. And, of course, they would be correct. Similar comments have emerged, usually from the mouths of Germany and France’s leaders, on the occasion of what seems like each and every EU summit meeting held over the last 12 months.
It might, however, finally be different this time, as many of the 17 Eurozone member countries are again entering the edge of a recession. It’s a harsh reality that for better or worse they all might be in this together. With Germany’s economy taking larger hits than it has in the recent past, the Eurozone’s leading economy might finally be willing to deal, rather than dictate all terms.
If in fact this time the ECB is given the green light to indeed do “whatever it takes,” then both Wall Street and the bourses of Europe could be ready to make a strong push towards an uptrend. On the other hand, if the leaders of the Eurozone fail to deliver on its latest promise, investors might lose whatever appetite for risk that they might have regained over the course of these last several market sessions.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.
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