Today has been a real capitulation day on several fronts. Equity markets are down, commodities are weak (oil and gas have collapsed), and most sovereign Euro bonds are diving. The US Fed's Mini-Twist response fails to address the slew of issues revealed by yesterday's US economic releases. The recent pledge to bail out Spanish banks has, in the mind of bond traders, already added €100B to Spain's impossible debt burden, and clearly demonstrated that German "style" initiatives are nothing but super sharp double edged swords. As market participants wake up to today's reality, and to make sure that we all know where we are, US banks are subjected to another round of downgrades (at this moment this is only conjecture, but the markets are currently trying to price in this probable eventuality).
So, is there anything positive happening? Yes, we're finally having a purge. Basically, today's price action makes more sense (in the face of negative news), than previous market reactions. Political issues have clouded sound judgement for too long, and today participants finally came to their senses and acted as they should have... a long time ago. Now the question is, will they over do it, or will they wake up to find that another government trump is in their hands? Today's capitulation will only be rewarding if there's a middle way.
