By the time you read this, the European Central Bank (ECB) will have unleashed its latest bazooka. Or is it a water pistol? The most potent weapon, patience, does not appear to be ruling the day. Having pulled the rug from under the naysayers with his pledge to “do whatever it takes,” ECB head Draghi has created a magnet. Money that fled local debt in emerging markets did not come back to the U.S., but went straight to weaker countries in the Eurozone, the so-called Eurozone periphery. To show just how much has changed, consider the chart below: Spain now pays about the same as the U.S. on 5 year notes, down from over 6 percent in the summer of 2012 when Draghi made his pledge:
What’s important is not so much whether these securities are overpriced, but that the so-called “contagion” may be limited by the fact that these risky investments ... Log in or subscribe to continue reading.
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