With volatility at depressed levels, markets at “delicate” levels and thin trading, we would not get over confident here. Here is Biderman’s thoughts on the market here.
Many bullish Wall Street analysts seem to be expecting decent second half earnings and revenue growth for the stock market as whole and that is their justification for current stock prices. I say there is no way earnings per share and revenues will grow in aggregate over the second half of this year. I do not include financial stocks in this accounting. That’s because big bank stocks’ earnings per share are based upon the same myth that the current stock market valuation is based upon, and that is the Bernanke Put. The Bernanke put says the Fed will print enough money to buy existing loans, and then everyone lives happily ever after. (full reading here).
With markets in rally mode this summer, investors have forgotten on the possibility of a Europe break up. If this was to happen, the consequences would be so big, that actually the only option left is to save the Eurozone, whatever the price. From Voxeu.
Articles on a possible breakup of Eurozone either see it as a mere devaluation (Lachman 2010, Roubini 2011) or reckon that its collapse would amount to a major economic disaster (Buiter 2011, Cliffe et al. 2010, Normand and Sandilya 2011). It seems the latter is more likely. Large imbalances have accumulated between southern debtor countries and northern creditor countries. Any capping of these balances would disrupt the payments mechanism between the Eurozone countries and impede all economic activity (Åslund 2012).
In the last century, Europe saw the collapse of three multi-nation currency zones, the Habsburg Empire, the Soviet Union, and Yugoslavia. They all ended in major disasters with hyperinflation. In the Habsburg Empire, Austria and Hungary faced hyperinflation. Yugoslavia experienced hyperinflation twice. In the former Soviet Union, ten out of 15 republics had hyperinflation (e.g. Pasvolsky 1928, Dornbusch 1992, Pleskovic and Sachs 1994, and Åslund 1995).