Fog Begins to Clear in Europe

No, this blog is not venturing into the weather forecasting business. We’re still all about the financial markets. Though many details remain to be fixed, we have the beginnings of some clarity in the European debt crisis. In yesterday’s post my speculation was that anything short of a 60% haircut on Greek paper would be well received. The number appears to have come in at 50%, and the European equity markets have reacted favorably. So far so good.

Also worthy of note, as of this writing the U.S. dollar index has broken below the 76 support level, and the euro is above $1.40 resistance – for some time its own support. Should this condition prevail, our bullish outlook on the equity markets will be reinforced, although I still would not be surprised by further consolidation in the U.S. after a brief rise in reaction to the news. Since October 4th, when we called the stock rally, it seems to me that the market, which had been priced for a European catastrophe, began to reprice itself for something more like what we have just seen. All of which is to say, we are probably pretty fairly valued at the moment, and it’s likely we will see volatility contract and a return to a more normal trading pattern for a while.

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