Mainstream analysts gets to notice what I have repeatedly been warning about.
They measured and documented the market’s response from each of the bailouts, and observed that the positive impact has been lessening. Bailouts are being overwhelmed by the law of diminishing returns.
The Wall Street Journal Blog [quote below and chart above from the same article] (bold emphasis mine):
The protracted euro-zone debt crisis has caused market sentiment to swing back and forth like spectators’ heads at a tennis match. Any news that suggests a resolution to the situation has been greeted with risk-on reactions, while negative news has sent investors fleeing for safety.
The risk-on impact of good headlines is waning, however, say economists at the Royal Bank of Canada, which should put policy makers on notice.
The RBC group mapped out market reactions since August 2011 to news that was viewed as positive to curbing the debt crisis. As expected, positive news led to narrower spreads between the 10-year bonds of Spain and Italy versus 10-year German bunds.
But just as an addict comes down faster after each subsequent drug dose, the markets have shrugged off positive moves at a quicker pace. For instance, the implementation of the first long-term refinancing operations by the European Central Bank triggered a 44 basis-point narrowing in spreads that took 8 days to unwind. The second LTRO caused only an 23-bp drop which unwound in three days.
Tom Porcelli, RBC’s chief U.S. economist, says positive European events have become “a sugar high.”
Until global central banks unleashes the GRAND BAZOOKA, caveat emptor.
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