Posted on 05/17/2010 5:57:07 AM PDT by Patriot1259
Early last week, the stock market cheered a $1 trillion bailout package to contain Europe’s debt crisis. The Dow Jones Industrials went up more than 400 points on Monday. By the end of the week, however, worries returned that European austerity plans would slow economic growth. The euro sank to a four-year low. Just a while ago, the euro was being touted as the world’s primary currency in-waiting.
On Friday, the Dow dropped 1.5% to trim the week’s gain to just 240 points. The S&P 500 snapped a two-week decline to close +2.2%. So far in 2010, both the S&P and the Dow are up by 1.8%.
The financial markets currently fear the outcome of the fiscal situation in Europe. The 2008 recession was all about leverage too, but that involved overextended homeowners and financial institutions. Governments bailed out some and let others fail. But how does a government, or group of governments, bail out other countries? A country like Greece or Portugal can’t actually declare bankruptcy.
(Excerpt) Read more at thecypresstimes.com ...
This is the classic value trap. A stock so cheap that it appears to be worth the risk. The problem is that the Eurozone is about as socialist as it can be and still have a functioning economy. Now the ECB switches from protecting the value of the currency to outright printing of money to bailout the PIIGS. A stock has value only the the extent that the earnings are real. An economy that is brought to a halt by rioting workers cannot generate profits for any supplier. Maybe these shares are cheap because of a rational reason.
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