JP Morgan looks at a leveraged EFSF Bank but sees a Eurobond

One would think it’s all rumours and half-baked drafts more akin to belong to a neverending script than to the global finances’ reality, but that doesn’t prevent financial institutions from making a serious effort to analyse possible and probable results of their implementation. JP Morgan says

“The possibility that any important news/measure comes out of some of the many meetings/summits that are planned for the next week and a half, impedes the opening of  additional underweight/short positions. On the other hand, this week the month and the Q3 ends. Given the underperformance of equities, we may be having an important “rebalance flow” from Treasuries to equity. These are the two arguments for what could be a week with some rebound in the markets. At the moment, this is the case. We could have a week +5/+7%, but we recommend to sell in the short if the S&P500 gets above the 1200 level.

“According to Moody’s the implementation of the Obama Plan’s deficit reduction would be positive for the US rating, but it believes that the chances of implementation are “extremely low”… Market pressure: The less stressed the market is, the slower the process will advance. To truly adopt these measures, the markets will have to become very stressed, and only then politicians will be forced to adopt them.

As for the euro laberynth,

“Basically, a leveraged “EFSF Bank” is something that looks very much like a Eurobond or an ECB that monetizes debt. Bonds buyers would be exposed to the risk that promises of fiscal consolidation may not be kept, and equally exposed to the risk of losing money. Politicians have to approve it based on the realization that it is the “lesser evil”.

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