Draghi Dares The Market

EU officials know that Spain and possibly Italy will need assistance. The stronger countries like Germany are willing to help but want to see structural changes and want some control over the weaker countries' budgets in exchange for a bailout. The weaker countries do not want to give up their sovereignty.

We have been seeing a high stakes game of chicken where the stronger countries refuse to help, while the weaker countries refuse to ask for assistance. In the meantime the Eurozone is falling into a deep recession. In the past week Spanish 10 year yields soared above 7% while Italy's neared 7%. The game of chicken was coming to a head and this may have forced a solution.

This morning Mario Draghi said he would do anything to keep the Eurozone together including intervening to close sovereign spreads. This has taken the near term tail risk out of the market and is the reason we are higher today. But this also allows the game of chicken to continue and the economy to continue to deteriorate in the interim.

4 comments:

Dirigi said...

Tsachy, congrats for SYMC.  
I have suffered with you on this one, may it be the beginning of a big rise for this stock.

Are you still positive on your hmo's (WLP, AET) ?
I was sure that trouble was already priced in hmo's, but it appears I was dead wrong...

Thanks

Dirigi said...

By the way, what's your opinion on CSCO at these levels ?

Tsachy Mishal said...

Its been a very tough stretch for me. One thing goes right and another goes wrong. Im not adding to the HMOs but I cant bring myself to sell at these valuations either.

Tsachy Mishal said...

CSCO is too hard for me. I prefer software companies because a lot of the revenue is recurring as users pay maintenance fees and renew when their license runs out. On hardware & networking new sales need to be made all the time so I stay away from those types of companies.