{"id":4742,"date":"2011-09-26T04:45:20","date_gmt":"2011-09-26T10:45:20","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=4742"},"modified":"2018-09-21T02:04:41","modified_gmt":"2018-09-21T06:04:41","slug":"amount-of-european-bailout-fund-about-right-finally","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2011\/09\/26\/amount-of-european-bailout-fund-about-right-finally\/","title":{"rendered":"Amount of European Bailout Fund About Right Finally"},"content":{"rendered":"

Yes, it has been awhile.\u00a0 Ironically I am even more engrossed in the goings on of the market with my new position at CFA Institute.\u00a0 But, alas, time has been scarce.\u00a0 I wanted to highlight for everyone that the Europeans are finally talking (after two years of dragging their feet) about the correct amount of money to fund their bailout.<\/span><\/p>\n

The most persistent fears, of course, are that Greece will default on one or more of its debt issues.\u00a0 Greece has about $420 billion of debt outstanding and a debt level that is about 139% of gross domestic product, or GDP.\u00a0 So any bailout fund, like the European Financial Stability Facility (EFSF) would need to have more than $420 billion.\u00a0 In fact, what has been pledged up until now is about $600 billion.<\/span><\/p>\n

But then there are the other members of the PIIGS nations, Portugal, Ireland, Italy and Spain.\u00a0 Ireland has successfully restructured its bank’s debts and redone its budget to ensure its continued solvency.\u00a0 Then there is Portugal – a disaster of a financial situation.\u00a0 But, and this is a big Sir Mix-A-Lot type of but, Portugal’s economy is tiny.\u00a0 So that leaves Italy and Spain.\u00a0 Here we are talking about two of the largest economies on the planet.\u00a0 Not easy to ignore, in other words.<\/span><\/p>\n

Of the two nations Italy is the nation with the bigger problems.\u00a0 Its sovereign debt is about 119% of gross domestic product (GDP) and it carries about $1.2 trillion of debt.\u00a0 So if you add up Greece’s debt and Italy’s debt you get about $1.62 trillion.\u00a0 And the Europeans are now talking about a $2 trillion facility.\u00a0 That’s about $380 billion of spare bailout capacity.<\/span><\/p>\n

The big fear of course is that there is a run on the banks in Europe that creates a cascade of bank failure, monetary sclerosis (money is every economy’s lubricant), and economic catastrophe.\u00a0 So any bailout has to cover the worst-case scenario.\u00a0 The world’s investors have finally caught the attention of the European finance authorities and politicians.\u00a0 Now the question is: will they do anything?<\/span><\/p>\n

I place the odds at just slightly better than half that there is a resolution.\u00a0 If not, that doesn’t necessarily equate with disaster – it’s just not the preferred outcome.\u00a0 The preferred outcome is that nervous investors worldwide can shift their obsessive attention away from “worst-case” scenarios and start focusing on the fact that the very businesses whose shares they are selling in mass numbers are actually doing quite well business-wise.<\/span><\/p>\n

Separately, and lastly, I have been speaking with several very large equity portfolio managers and they are all chomping at the bit to deploy cash in the cheapest financial markets that they have seen since, well, 2009; and before that, 1973.\u00a0 But for the fact that their shareholders are liquidating and creating the need for them to sell to cover cash redemptions, they would be buyers of businesses right here.\u00a0 That’s a very encouraging sign…that is, a possible end to the massive bout of irrationality.<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Yes, it has been awhile.\u00a0 Ironically I am even more engrossed in the goings on of the market with my new position at CFA Institute.\u00a0 But, alas, time has been scarce.\u00a0 I wanted to highlight for everyone that the Europeans are finally talking (after two years of dragging their feet) about the correct amount of […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-4742","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4742","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=4742"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4742\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=4742"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=4742"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=4742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}