10.10.11: In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on four items impacting financial markets:
1. The Merkel, Sarkozy eurozone pledge is again short on details. On Sunday, Angela Merkel and Nicolas Sarkozy made yet another pledge to take action to solve the eurozone’s debt crisis, saying they would formulate a plan by early next month to recapitalize European banks and accelerate economic coordination in the currency bloc. However, the German and French leaders provided no details, with sources saying they still have to resolve differences over who will pay for the recapitalization and how deeply to restructure Greece’s debts.
2. Euro attention is also turning to Slovakia. While France and Germany “slug out” the details over the eurozone’s rescue fund, Slovakia has become the latest of the smaller countries to threaten the future of the region. Leaders of the governing coalition are due to meet later today in an attempt to persuade the SaS party, a junior partner, to support the expansion of the fund. However, it seems that SaS chief Richard Sulik is unconvinced: “The greatest threat to the euro is the bailout fund itself,” Sulik told Spiegel Online.
3. Dexia to be rescued. The Merkel-Sarkozy talks were given extra urgency by the woes of Dexia, whose rescue was agreed to by France, Luxembourg and Belgium last night. The latter’s government will buy the bank’s Belgian business for $5.4 B and all three countries have provided a combined guarantee of 90B euros to secure borrowing over the next 10 years. Belgium will take responsibility for 60.5% of the total, a pledge that could hit its Aa1 rating. On Friday, Moody’s warned it may downgrade Belgium because of the burden it was set to take on.
4. Hedge fund Q3 performance was the worst since the 2008 crisis. The value of assets at hedge funds fell an average of 5.5% in Q3 2011, Hedge Fund Research says, with violent market swings helping cause the worst quarter since the depths of the 2008 financial crisis. And in the first nine months of 2011, funds focused on equities only provided the same returns as the S&P 500. In September, just two strategies made money out of 18 tracked: funds specializing in shorting stocks rose 6.9%, while those that took a quantitative approach to betting on interest rates and currencies inched up 0.2%.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Senior Vice President
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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