Nearly every talking head in the financial media is hoping for good news to come out of the European Summit which starts tomorrow. What does good news actually mean? Well, it actually means more debt will be created for another bailout. Isn’t too much debt the problem in the first place? All these years of increasing the debt has finally caught up with the people, governments, and banks. Another bailout whether it comes from Germany, the International Monetary Fund, China, or the Federal Reserve will simply create a bigger problem down the road. The way governments spend money must change, and the way banks lend and get bailed out must change.
Nearly everyone in the investing community is now looking for a bailout in some shape or form. The same goes for the banks. A case can be made that the large banks around the world are the biggest welfare recipients in the world. After all, the Fed funds rate in the United States has been zero percent since December 2008. This means that the four largest banks in the United States such as J.P. Morgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and Bank of America Corp (NYSE:BAC) can borrow money at zero percent. These same banks essentially pay you no interest in a savings account, charge you an average of 17.0 percent interest on a credit card, and speculate in the stock, bond, currency, and derivative markets. What a racket!
In Europe, their are many entitlements for their people. Health care, long vacations, a lenient work schedule, and early retirement are all part of the European life. These same people also pay a boatload in taxes to have it that way too. So what is going to happen to that way of life from this point on? Is life about to change in Europe as we know it? Of course it is, because debt cannot bailout debt like the politicians, and the central bankers would have you believe.
At this time, the stock market institutions that move markets are betting on more stimulus or money printing in one form or another. Simply put, everyone knows that these institutions are addicted to stimulus. As a trader we must simply read this type of action on the charts and play the near term moves. This does not have to be a time when money cannot be made, it is the opposite, it is a time when money can be made almost on a daily basis if you can read the charts. Lets see if the so called good news out of Europe will happen soon. This will usually lead to good trading opportunities on both the long and short sides in the stock market.