For those of you who haven't been paying attention, the markets have been pressured by a Greek debt crisis, in addition to similar simmering crises in Spain and Portugal. Credit Default Swaps (CDSes) on those Mediteranean nations have "blown out" -- indicating high risk of default. This morning, though, markets are rallying strongly as there is a whiff of a Euro-bailout of Greece in the air.
European markets, gold, oil, and the Euro have all rallied powerfully
in the last hour, indicating that something may be up. The New York Times
reports that Jean-Claude Trichet, the European Central Bank president, cut short a trip to take part in a special European summit this week
, giving rise to speculation that they are about to pull the trigger on some sort of rescue plan. The Wall Street Journal says the Greek banking crisis will likely force the Euro bank's hand
For anybody who doesn't think the crisis was serious enough, take a look at the chart below, which shows the CDS swaps on Greek and Portuguese debt rising to levels higher than at the global market bottoms of spring of 2009.
[caption id="attachment_1060" align="aligncenter" width="554" caption="Default swaps on Greek and Portuguese debt are higher than they were at market bottoms in the spring of 2009."]
If the bailout comes, it will establish a solid trend of central banks around the world of printing money to put out fires, which may well reinforce the Austrian school's economic theory that this global crisis will come to an end with showers of money and hyperinflation.
But traders will like it! judging by today's initial reaction, markets could rush straight back into the bull mode on any sign of a bailout of Greece. Can we say it now? Can I call it the Baklava Bailout? Get ready for dessert!
[caption id="attachment_1061" align="aligncenter" width="400" caption="Traders look like they are getting ready for a Greek dessert"]