Via Peter Tchir of TF Market Advisors
The stock market seems to be the last group still buying into the Europe "gets it" argument.
What has Europe done:
- Instituted short selling bans on as many products as possible
- Instituted new rules to let the EU pick and choose when to use rating agencies
- Redefined "prudent risk reducing bond sale" into "attack on a country"
- an ECB rate cut, that only showed Trichet wasn't wrong to leave rates alone since it had absolutely zero impact on sovereign debt yields (and may be part of the reason we are getting the renewed sell-off, since it signaled fear)
- Got people to start thinking about what it would mean to leave the Euro or the EU
- Overthrew the government in two countries and put in "technocrats" who seem to have limited support - not that surprising since no one voted for them
What Europe hasn't done (that they were supposed to):
- Leveraged EFSF - a 7 page idea sheet with no typos is about the extent of it
- IIF voluntary EFSF backed 50% NPV reducing haircut for Greece - nada
- More IMF money - not so much (though the BRIC countries may take on bigger quotas - probably because the US and EU are running out of money)- BRIC direct support - not yet, but on the other hand, since Regling hasn't had a real product to offer, they might yet come in on something
What Europe hasn't done, and wasn't in the plans:
- Massive printing of money by the ECB, this now seems expected by everyone, yet was not part of the plan and there are lots of good reasons not to do it, and if the politicians care more about this year's bonus pool, they may actually resist this demand and try and figure out a solution, that while short term painful, has a real chance of long term success.
The credit markets now seem to be fully diverging from equities, and offer more opportunities here than stocks. In credit, Europe is starting to look attractive versus the US. Sovereign credit looks better than bank credit in Europe. High Yield may not be bad here, but we think HYG/JNK definitely got ahead of themselves at these prices.