Santa’s Late! The stock market as measured by the DJIA closed the week down at 11,866, showing significant deviation from the santa rally script with barely a week remaining, the lack of progress to the upside has been as a consequences of the increasing mass of unserviceable debt out of the euro-zone where politicians repeatedly show themselves to be ignorant of the facts and what to do to get out of the hole that the euro-zone is sinking deeper into an economic depression each day.
The euro-zone politicians appear single mindedly determined to do absolutely NOTHING to save the euro-zone, which is the reason why the bulk of my analysis and articles of the past 6 months has been centred around the risks coming out of the euro-zone, because just when you thought that they had succeeded at kicking the can a few months down the road, which was the conclusion of last weeks analysis that the risks of a collapse of the banking system had been delayed until at least Mid Jan 2012, instead this week has seen last weeks rescue plan already starting to disintegrate.
The discredited credit rating agencies have been busy issuing a string of warnings that they are ready to start downgrading virtually the whole euro-zone starting with the 5 PIIGS and then to target the euro-core with Fitch putting France on negative death watch as well as downgrading 7 of the worlds biggest banks. Even Belgium that had somehow been managing to fly under the radar despite its own bankrupt banks and debt burden was down graded by Moody’s to Aa3.
The Bond Markets have had French 10 year bonds trading as high as 4% in recent weeks that’s near double the interest rate charged to the UK to finance its debts, albeit more recent rates are 3.20% against 2.10% for the UK, which is still a sizeable disparity for countries that to academic economists appear very similar in many respects. Off course the markets do not follow academic models that because the markets discount the future, and don’t care for what’s visible in the rear view mirror.