-- Posted Friday, 14 January 2011 | | Source: GoldSeek.com
European government debt problems surfaced over a year ago. Initially, Greece was the only country struggling to access the capital markets, yet the problems have continued to spread and are in no way contained. Although European countries created a stabilization fund and the ECB has bought European debt on the open market, bond prices have continued to fall. Yet, even in the face of falling government bond prices, global equities have continued to rally.
A similar situation occurred in 2007 when stocks rallied despite a crumbling mortgage market. In early 2007, the lowest rated subprime mortgage bonds began to fall in price (Figure 1). However, by October, 2007, stocks made all time highs.
Figure 1. Subprime Mortgage Bond Prices in 2007
The stock market is making new highs despite yields of European sovereign bonds showing signs of stress. Below are the charts of Irish, Italian, Portuguese, and Spanish bond yields.
In 2007, as the subprime mortgage market was in turmoil, the equity market rose to all time highs as investors ignored the risks to home prices and the economy. Now, just four years later, equity investors are again overlooking the turmoil in credit markets. Could investors be making the same mistake they made in 2007?
Daniel Aaronson - daaronson@continentalca.com
Lee Markowitz - lmarkowitz@continentalca.com
http://www.continentalca.com
Continental Capital Advisors, LLC
Continental Capital Advisors, LLC was formed to offset the destruction of wealth caused by the global devaluation of currencies by central banks. The name Continental Capital symbolizes the 1775 US Currency, "the Continental", which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as investment advice. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Certain statements included herein may constitute "forward-looking statements" within the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any action taken as a result of reading this is solely the responsibility of the reader.
-- Posted Friday, 14 January 2011 | Digg This Article
| Source: GoldSeek.com
