A few days ago we underwent a reallocation of risk due to the increasing divergence between markets and real fundamentals. We are not secularly bearish, in part because it is difficult to see asset prices fall when faced with the wall of liquidity central banks are producing. But asset prices (equities in particularly) went from read more

Mario Draghi (ECB President) once again showed leadership at crisis management, when he announced the details of his plan to use the Central Bank’s balance sheet to help the euro and its troubled countries in their transition through structural reforms. Mario Draghi shows a rare and privileged combination of leadership and pragmatism. The size of read more

Over the last 3 years we have expressed skepticism about the crisis management skills of European policy makers. Recently we characterized the problem as one of pace and not substance. The basic ideas to save the euro are part of the policy debate, and politicians seem to understand the direction. But the politicians are always read more

European Central Bank President Mario Draghi knows how to influence markets, and so he did last week. After months of staying out (some would argue intentionally absent), he stated the ECB would do whatever it takes to save the euro. He had similar effects the previous few times he spoke or acted (LTROs, etc.). The read more

After more than 2 years of the euro crisis coming and going, something of a catharsis is possible with the next Greek elections and its potential exit. The Spanish bank bailout announced over the weekend is part of the effort to isolate the rest of the Eurozone from a potentially very negative shock. Markets clearly read more

The probability that Greece is out of the euro in the next 2 months has increased to high levels. The risk of contagion to Spain and others is significant. This is clear to EU policy makers, which means they ought to be thinking about the response, which in this case needs to be a big read more

The elections in Greece and France have brought yet another bout of euro crisis. It had been so far a game played between policy makers (EU, ECB, IMF) and markets (especially bond markets), in which policy reacted with bailouts and political agreements to every bout of market pressure. There is a new player now, which read more

There are clearly three main drivers in today’s markets, which explain the recent volatility and lack of direction. The three factors are: the slowdown in China and fears of a hard landing; the US business cycle; and, crisis flares from the Eurozone periphery. To some extent these show the market is addicted to extravagant Chinese read more

Despite Hungary not sharing the euro, what the EU does about Hungary should have very relevant implications for the euro and the credibility of the reforms Merkel and Sarkozy are trying to implement. Hungary is not only in the middle of mini fiscal and political crises, but is potentially the most recent and clear-cut test read more

A few weeks ago we wrote that only when the European Central Bank did get seriously involved in the markets, the crisis management scheme would be complete. Last Wednesday the ECB did provide an unprecedented amount of liquidity to markets through the new 3-year credit line to banks. We see this event as a potential read more