Meet the New Plan, Same as the Old Plan

Factbox: Euro zone decides new measures to end debt crisis | Reuters.

This plan has too many holes to be taken seriously, but the markets are taking the plan seriously. We are stuck in an endless loop of summits and short-lived rallies.

This is how it works. The day before the summit no one wants to hold announcement risk, which is the risk that the market will rally on a set of illusory promises from the Euros. People begin covering their short positions and this action creates a positive feedback loop that really explodes into a rally when the announcement is made. Within a few days, people will take profits from the rally, and the markets will be back to the same position.

What is the endgame? Will the whole system come down in a crash to end all crashes like a lot of people believe? Will we just continue muddling in stagnation for the next few years as governments trot out one half-assed solution then another?


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s