Sunday’s even larger than expected bailout offer for Spain’s banks was not enough to buy even a one-day rally?
It not only failed to raise the confidence of markets regarding Spain’s precarious position, but sparked increased concerns that Italy is following closely behind on the steepening slippery slope that the eurozone has become.
Yields on Spanish and Italian debt are rising again today, the yield on 10-year Spanish bonds rising to 6.62%, and Italy’s to 6.15%. And the cost of insuring 5-year Spanish debt via credit default swaps rose to 6.05%, a new record, while the cost of insuring Italian debt rose 0.11% to 5.61%.
Markets are just not buying the bailout of Spanish banks as a solution to Spain’s government debt crisis.
Officials are going to have to go back to the drawing board and come up with something much more dramatic.
And once efforts begin not having even short-term effects on markets, disappointing partial solutions can become self-defeating.
We have only to look back at how the 2008 financial meltdown in the U.S. progressed.
In March 2008, the initial $29 billion bailout of banks created a four-month stock market rally. But as the situation worsened, the $178 billion stimulus package for consumers in May was not accepted well by markets, which began selling off sharply. And from there on it was a steady stream of ever larger bailout packages that the markets looked on as band-aids that wouldn’t solve the overall problems. The $200 billion bailout of Fannie Mae in September, the additional $700 billion bailout of banks in October, the $787 billion ‘American people’ stimulus package in Feb., 2009, and so on, each one resulting in only further market meltdown as the problems increased and the piecemeal efforts failed.
Europe may be on the same course already if they don’t come up with something dramatic very soon.
U.S. market is still at interesting juncture.
Intermediate-term the major indexes broke down through intermediate-term support levels, until they reached the long-term 200-day m.a. week before last. And with last week’s rally they bounced off that potential support.
Short-term, last week’s big rally recovered most of the sharp decline of the previous 4 days, and popped the major indexes above the short-term resistance at 21-day moving averages, but only fractionally, and did not break the negative pattern of lower highs and lower lows.
And yesterday’s sharp downside reversals broke them back beneath the m.a., but only fractionally.
Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of today’s blog, there is an in-depth signals report on ‘Bonds, Gold, the U.S. Dollar, and Commodities’ in the subscribers’ area of the Street Smart Report website from yesterday. And please also stay tuned to the hotline!
To read my weekend newspaper column ‘What’s Wrong With Gold?’ click here.
Images: Flickr (licence attribution)
About The Author
Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!