Thursday, August 2, 2012

The Market Answer to Draghi

What is the market reaction to European Central Bank president Mario Drgahi's statement that he is "drawing up a plan"?

The Italy/Germany 10 year bond spread has 500 basis points. Whatever the reason for Draghi foot dragging, he is playing on the edge of major collapse. A collapse, from a free market perspective, may not be a bad thing, but it is going to be hell to pay for anyone owning sovereign debt or  financial institutions tied in with those holding sovereign debt.

This is a good day to hug your gold coins.

I suspect, if they don't mistime it, the ECB will eventually come in to prop up the sovereign debt, but the longer they wait, the more likely they will fail to act before collapse occurs.


  1. "This is a good day to hug your gold coins."

    This is the first time I've seen precious metals equated to a stuffed animal. But in times like these, the comparison may be apt.

  2. They will print as soon as the election is over.