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Thursday, May 24, 2012

Market Thought... EuroBonds

The chatter is getting interesting. The renewed sense of a EuroBond turned the market.

The Telegraph has a good article highlighting the dynamic unification of EU perception, with Germany standing alone. Interesting indeed.

I never bashed the Germans for their desire to promote responsibility.  EU states have been sucking the tit for far too long, but since 2007 the troubled states have been in recession. (And I would argue the economy in the PIGS has been in real recession, for the average person, since 2001-2002. I witnessed it qualitatively first hand visiting Greece year-after-year, and the systematic decline in activity within a 10-15 year period.)

Five years worth of documented recession. Over 10years worth of meager economic performance. The breaking point appears to have arrived.

Over the past 8 months, the progress in the EU, with respect to structural reforms is nothing short of historic. Governments changed hands, ideologies shifted, drastic change in policies were put in place and all of this was completed within months and without a war. The driver of reform was a couple of trillion dollar paper-losses in the markets. (I truly am fascinated by the course of recent events.)

I do not think the Germans will ignore the progress that was already created.  Nor are they immune to heavy pressure. Bonds specific to infrastructure will find buyers via the Chinese. (They have not made their interest in such investments a secret.)

Will there be a EuroBond?  

I fucking hope so!  This maybe enough for the market to trade at a 15 multiple.  Then the SP500 could be on track to close higher then 1500 by the end of the year.

With reforms in place, the only major structural hurdle left within the EU would be to implement a universal EU-wide tax collecting mechanism (like US Federal Tax).

I know the counter intuitive nature of more debt to counter the current debt, but there is validity to the strategy. Its no different than Ford massively leveraging, using the funds to reposition the company and now a few years later, has less debt than cash on its balance sheet, huge cash flow and considered investment grade.

There is light at the end of the tunnel.  If EuroBonds become reality, imo, the markets are an outright strong buy.  Europe will not collapse. No country will need to exit the Euro (does not mean countries can not default). European concerns will no longer be front page news, at least in the near to mid term. The SP500 will remove its massive discount.

I am beginning to feel giddy. I hope this chatter is real.

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