The only real question remains, is whether Merkel and Sarkozy will hold hands to add emphasis to their “we saved the world” announcement. We will get an announcement and it will sound positive. Unless they did a lot of work in the past 24 hours, it seems unlikely that any details will come out. We will hear about grand plans to leverage EFSF, how it has more than enough money to accomplish its goal (of pushing default to next year) and how countries are committed to making it work, and how bank recapitalizations will be done to ensure the safety and soundness of the Eurozone banks, and how with private sector involvement, not only will Greece have the opportunity to grow its way out of the crisis, but other countries too will be given the chance to grow and be successful – austerity is now a dirty word.
There will be no mention of how the countries will grow, and at whose expense the growth will come. The banks won’t be forced to dilute themselves, so they will go down the path of massive US Asset sales (causing QE3). The Greek debt negotiations will flounder because the banks don’t really want to take a haircut, so whatever occurs will be dramatically watered down from what is being discussed – though on the bright side the EU leaders don’t understand enough about finance to figure out just how watered down the final PSI is.
Italy seems more likely to find hidden holes in their budget than any real progress. The EFSF is unlikely to receive strong ratings, and isn’t going to trade at such a miraculously tight level, that the costs are going to be very high to use it, and will be paid for by Germany and France.
The IMF and Germany are going to want so many restrictions, the only jobs created will be for TROIKA inspectors and summit travel planners.
China and Brazil don’t seem to be in a rush to put money behind their promises, and they don’t even seem that eager to make promises.
Stocks, once again, seem to be reacting more favorably to the headlines, than credit, but everywhere the tone seems to be mildly positive. Earnings have seemed mixed. What is surprising to me is the damage that has been inflicted on some of the darlings of the market – Amazon, Netflix, and First Solar in particular. Not as well-known, but possibly more relevant to the markets is the thrashing MF Global took yesterday, and that was from already depressed levels. Stocks as a whole seem overbought here, the short interest is declining, most investors now seem more bullish, and they have been right, but once we get something that even resembles a plan, I think the markets will have to digest the implications and it won’t be as rosy as people are current pricing in.