“Anything That Will Alarm the Public is News” -Louis Dudeck
Europe Reaches Debt Deal
A great week was enjoyed in the markets as European Leaders finalized a plan Thursday they hope will mark a turning point in the 2 year debt crisis. The strategy unveiled after 10 hours of negotiations hit upon 3 points. These include a significant reduction of Greece’s debts, a shoring up of the continent’s banks, and a reinforcement of a bailout fund so it can serve as a $1.39 trillion protection to prevent larger economies like Italy and Spain from being dragged into the crisis. The strategy’s ultimate effectiveness will depend on the details, which will have to be finalized in the coming days and weeks.
The most difficult piece of the puzzle was Greece, whose debts would fall to 120% of its GDP by 2020. Under current conditions, they would have risen to 180%. To achieve the reduction, private creditors will be asked to accept 50% losses on the bonds they hold. The full program is expected to be finalized by early December and investors are supposed to swap their bonds in January. “We can claim that a new day has come for Greece, and not only for Greece but also for Europe,” said Greek Prime Minister George Papandreou, whose country’s troubles touched off the crisis two years ago. “Let’s hope the worst is over.”
With the banks being asked to carry more of the burden, there were concerns they needed more money in their rainy-day funds to cushion their losses. European leaders have asked them to raise $148 billion by June. The last piece in the plan was to increase the firepower of the continent’s bailout fund to ensure that other countries like Italy and Spain don’t get dragged into the crisis. To that end, the $610 billion European Financial Stability Facility will be used to insure part of the potential losses on the debt of euro zone countries like Italy and Spain. That should have the effect of making those countries’ bonds more attractive investments and thus lowering borrowing costs for their governments. Such outside help may be necessary for Italy and Spain, whose banks were facing some of the biggest capital shortfalls.
The TSX closed at 12520, up 571 points or 4.78% over the past week. YTD the TSX is down -6.87%.
The DOW closed at 12231, up 422 points or 3.57% over the past week.YTD the DOW is up 5.64%.
The S&P closed at 1285, up 47 points or 3.80% over the past week.YTD the S&P is up 2.15%.
The Nasdaq closed at 2737, up 100 points or 3.79% over the past week.YTD the Nasdaq is up 3.17%.
Gold closed at 1744, up 104.00 points or 6.34% over the past week.YTD gold is up 22.73%.
Oil closed at 93.47, up 5.78 points or 6.59% over the past week.YTD oil is up 1.92%.
The CAD/USD closed at 1.0082, up 0.0169 points or 1.70% over the past week.YTD the CAD/USD is up 0.56%.
Sources: Bloomberg, Investment Executive, Advisor