Sovereign Debt Is No Secret
This commentary originally appeared on Dec. 20 at 9:30 a.m. EST on Real Money Pro -- for access to all of legendary hedge funder manager Doug Kass's strategies and commentaries, click here.
The point I have been trying to make over the last week (that has clearly not been heard!) is that we are already seeing the benefits of the eurozone's plans to defuse the debt contagion and crisis in the form of lower (in certain cases, much lower) sovereign bond yields.
It is why, coupled with the dour investment sentiment and improving high-frequency domestic economic statistics, I have been expanding my net long exposure.
I am fully aware of the structural problems of a debt-laden European economy (who isn't?) and the disparate interests of the 17 members of the EU that is a headwind to a cohesive policy aimed at stabilization of the crisis. But the underlying problem in the eurozone is well-known by now, and quite frankly should have been a cautionary sign to market strategists a year ago and six and three months ago, as they would have avoided many of the stock market's problems in 2011.As CNBC's Steve Liesman quite accurately and succinctly said last week, financial calamity occurs when the problems (and depth of the consequences) are not known, not when the problems are universally known. The eurozone Cassandras are out in droves now, supported by an ailing stock market, Draghi's hard line and Lagarde's ominous rhetoric. But so were the U.S. Cassandras out in droves during our domestic bank, debt and financial crisis of 2008-2009, yet much of those threats were overcome with aggressive policy -- and aggressive policy is inevitable in Europe, as the tension is kept on the weaker members of the EU until they respond responsibly in a fiscal sense. And, already, as measured by lower sovereign debt yields, policy is having a positive impact. The perma-bears missed the March 2009 generational low (666 in the S&P 500). Throughout the market's ramp over the past two and a half years, observers such as Nouriel Roubini have been in denial, wearing blinders that block out the recovery in stocks, and they have been very wrong in expecting a U.S. double-dip. I am sorry, he and others plainly screwed up.
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