Tuesday 6 September 2011

Could the markets bottom before the height of the Euro Crisis?

OK, I know I have written alot on the Euro Crisis recently, but frankly it deserves it. If 2008 was the worst Financial Crisis in 60 years, then this is its baby and we still don't know whether it will be even worse than its parents.

However, over the summer and particularly in August there have been some very sharp moves in the Stick market. The FTSE is 17% off its year highs and 25% off its 2008 highs. That is quite a fall already, yesterday the market was off another 3.5% in a day. I think there is plenty of room for these falls to continue in the political vacuum that is Eurozone policy.

However, I also note that in 2008 the main falls came post-Lehman - the market was off a chunk going into September, but not catastrophically down. Instead, the falls really came after the credit shock.

Is it different this time? This time the whole financial world is looking for the credit and liquidity events that will rock Europe. Plus they are looking at Greek default (one year Greek bills now at 86% yield!) and a fall out of the Eurozone.

Perhaps this time more fear is built into the market and instead of big further falls (by this I mean below 4800 on the FTSE and possibly to 4000) won't happen even if Greece does fall out of the Eurozone. Instead, in terms of the stages of change above, we are well into 3 and nearly at 4. This would mean that the end of the Eurozone as is may instead look like the cathartic moment which delivers real growth opportunities after all the pain and false starts - similar to the UK in 1992 when we fell out of the ERM system. The FTSE then fell barely 10% more after exit and soon began a long run up to 1999 when it had nearly tripled.


hovis said...

I have spouted forth on this before but I love the line:
"If 2008 was the worst Financial Crisis in 60 years, then this is its baby and we still don't know whether it will be even worse than its parents"

As I have said in other ways before '08 was the entree get ready for to dine on the main course ..

Anonymous said...

How about a return to commonsense.


Anonymous said...


Bill Quango MP said...

States of changes graph?
You doing teaching again CU?

It'll be the freezing,refreezing next.

Budgie said...

I don't think the euro elites are remotely willing to accept a euro breakup just yet. They have too much at stake.

Ian Phillips said...

"some very sharp moves in the Stick market", it's the sharp stick we use to poke the eurocrats!

andrew said...

We fall victim to groupthink here as much as the eurocrats do.

I do not think euro will collapse. There will not be a return to the DM/Fr/whatever.

We may find that some countries leave the euro
We may find that some other countries are bailed out by the euro (and in return lose some fiscal independance).

the euro will not go out with a bang, but will limp on with an occasional farty noise.

In the mean time, I do think the FTSE will limp on down to 4400 or so

CityUnslicker said...

Thanks to all for spotting the tupos....

Bill Quango MP said...

Looks like Switzerland is bailing out the Euro.

Electro-Kevin said...

I suppose you're all trying to spot how to make money in the turbulance.

Not the same as finding a solution.

Any country with sound infrastructure, national cohesion, working law and order, a proper rewards system and some agricultural land should be alright.

We should be focussing on shoring up all of that as much as anything else.

Anonymous said...

Graph.... What a load of bolloxs

Budgie said...

andrew said: "We fall victim to groupthink here as much as the eurocrats do. I do not think euro will collapse."

No and yes (yet).

Sebastian Weetabix said...

You should all read "When Money Dies" by Adam Fergusson, and compare the present situation. The system is not ready to collapse yet, not by a long chalk. We do not have nascent civil war on the streets with death squads from the extremes murdering each other. People still have food and the welfare state has not collapsed. In the '20s & '30s, austerity meant no shoes and going without food.

If we get to that point then we can worry about adopting the survivalist mindset. We may yet get there with the present crop of cretins in charge but we should save the superlatives for when we actually need them.

Botogol said...

are you looking for a new job CU? I was intrigued by the source of the (rather good) stages of change diagram