Vote of No Confidence for Draghi

After Mario Draghi's impassioned guarantee to do "whatever it takes to save the euro," equity markets around the globe initially rose in eager anticipation of the breathtaking new plan to rescue the troubled European sovereign debt markets.

Unfortunately, today's announcement of possibly buying a few Spanish and Italian bonds on the margin in the next month or so, which by-the-way Germany does not support, was not exactly "whatever it takes to save the euro."

Spanish yields jumped from 6.61% yesterday to 7.25% today.  Yields in Italy rose from 6.02% to 6.33%.  Here was the equity markets' response in Europe and in the U.S:

  • England -0.88%
  • Germany -2.20%
  • France -2.68%
  • Italy -4.64%
  • Spain -5.16%
  • U.S. (S&P 500 )  -0.75%

Consistent with the risk-off trade, commodities were also down sharply, the US dollar was up, and US Treasury bond prices were up.

Draghi would have been better off not making bold promises without the ammunition to back them up.  That would have been much better than sacrificing what little credibility remains with Europe's policy makers


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About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.
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