It’s come down to this — the latest summit of European leaders to try to tackle their worsening financial crisis concludes today. The market’s rally of the past two weeks seems to imply that investors are betting they’ll get it right this time. The definition of “getting it right” apparently consists of a credible framework for controlling future fiscal deficits, which would then provide cover for the ECB to buy troubled European debt on the open market with vigor in order to bring down the soaring interest rates of countries like Italy and Spain.
Given our defensive positioning, there’s certainly a temptation to buy in front of what could spark a big rally in the markets (if they actually succeed this time). We know that waiting could mean missing part of the move. But as risk managers, we also realize that attempting to guess or game what may come out of a meeting like this, despite the “leaks” of what is supposedly going to happen, isn’t the most prudent way to make investment decisions. Considering the string of disappointments resulting from the previous failed summits, investors have every reason to be skeptical. Regardless, in what has almost become the new routine for us, we’ll be assessing the latest European Grand Plan, and whether the continent’s leaders really delivered this time.
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