ECB Chief Mario Draghi Gets It, Does Merkel?


Author Larry Berman

Posted: 30 July 2012

Prior to Draghi’s comments today at 6:10 ET, risk assets were weaker, European stocks were soft, US futures were slightly lower and the euro was flat. It is clear we initially saw a wave of short covering and some long speculation. Stressed European bond yields have moved lower, but remain elevated (Spanish 10s still north of 7%). It would seem, by the strength of his words, that he gets it—yet to be determined if Merkel gets it. But in the interim, he likely took away the marginal seller until the dust settles or until we here from Merkel one way or the other.

If it is just back to US earnings and not having to worry about Europe for a while, then the markets could resume their upward grind. For those willing to speculate that this could be the European liquidity bazooka, stops under yesterday’s low are recommended. We are not certain here, but we do know monetizing the debt will not fix the problems—it will help psychology for a while as it has done in Japan for 17 years, but their stock markets remain 70%+ below the 1989 peak so who is kidding who.

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