Spreadex Market Update
Euro and US equities move higher
The auction, though not as significant as Thursday’s, was critical to help instil confidence into a market that could run, not walk, away from Spain’s ability to borrow if investors saw the bonds being dumped.
Investors are faced with the uncertainty of Spain and the Eurozone but with the lure of what seems to be endless liquidity from central banks if the state of affairs were to worsen so to require it.
After all, Bernanke and the fed only dampened the outlook of QE3 because of an improving outlook.
So, if that were to change, and for any reason it would be reasonable to assume – Europe included – the fed are ready by the faucet. But things are complicated: by printing so much, central banks are potentially damaging the economies they’re designed to facilitate and protect as a result of how much they’re expanding balance sheets as a percentage of GDP in return for a short-term benefit.
So, even with the likelihood of a depression happening near-term being negatively correlated with how much bond-buying occurs, the negative impact on future GDP these accounting tricks are likely to have will also, unfortunately, be positively correlated to that bond-buying.
Someone, somewhere, at some point will have to incur the liabilities these governmental bodies are kicking down the road. And until that happens, the market will search for its next hit of liquidity.
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