Mon, May 1, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Europe’s $1tln bailout money just a temporary fix, but many hope it will work

Wednesday, May 12, 2010
Opalesque Industry Update – The European Central Bank plan to infuse at least $1tln through a rescue package to ease fears of a market collapse and assist ailing members of the European Union may have buoyed the markets, but many fear it is just another “temporary fix” that does not provide a permanent solution to prevent the same problem from happening again.

Speaking during an appearance on BBN’s Headline with Howard Green, Ron Ianieri, chief market strategist at financial consulting firm Ion Options, likened the European fund to the TARP (Troubled Asset Relief Program) introduced by the U.S. government in 2008 at the height of global financial crisis with the aim of reviving the national economy.

But, he said that such a program is not a fix for the problem but is rather “putting a bandage on the bullet wounds and not getting the gun from the people doing the shooting.” He added: “We have to start with legislation, and prevent the guy from shooting and not just bailout when he starts shooting again.”

He added that in the U.S., the Bush administration introduced the first TARP program, thinking that the money was sufficient to bailout the economy. But, the US was ultimately forced to increase bailout funding (expanding the original $365bn to $700bn) when it became clear more economic bolstering was needed. The same could happen in Europe if policy makers would only think of bailout, he said.

Bailout to work
In the same program, Vincent Deluard, Global Equity Strategist at TrimTabs Investment Research, said that markets across the globe responded positively to the bailout news. In fact, he said that the euro was up on Monday as news of the $1tln rescue package was announced.

“The market's feeling everybody will be bailed out. So far, it is working out,” he told BNN.

Deluard found an ally in International Monetary Fund (IMF) chief Dominique Strauss-Kahn who said on Tuesday that he had "no doubt" the EU bailout package for Greece would help, the country address its fiscal problems and set it back on a path for growth, reported SMH.com.au.

"I have no doubt the program that has been built by the Europeans with our support for Greece is a program that would put Greece out of trouble. It's a very difficult program, a very tough program for the Greeks, but it is the right way to go back on track," said Strauss-Kahn in Zurich.

Where will the money come from?
Gavin Graham, global strategist at Excel Funds Management, said that while the markets’ initial reaction was positive, it was still too early to celebrate. He said that the more compelling question now is, where will the money come from? Ed Devlin, Executive Vice President at global asset management firm PIMCO, said that the money could come from the European Central Bank.

He added that in the last week, the markets saw the European Union getting their acts together to come up with a relief package. “It's not inconceivable to see these people act more decisively again (to find the money for the bailout),” Devlin said.

Europe slow to act on the problem
However, other managers see continued risk. Ianieri expressed concern that the EU may have acted “too late and too slow” in addressing the Greece debt and fiscal problems, that they had grown so large even a $1tln rescue package is not enough.

In an article published in Hindustan Times, Landon Thomas Jr. & Jack Ewing, also criticized the “lateness” of the EU’s response.

The two authors also criticized the program because it may create the impression that other countries could allow their budget deficits and debt loads to balloon, with the precedent set that they would be bailed out later.

European debt crisis downplayed
American hedge fund manager, John Paulson, head of head fund giant Paulson & Co., has downplayed the sovereign debt crisis in Europe and described it as “manageable.”

His sentiment was shared by Dietmar Schmitt, founder of London-based boutique called SAM Capital Partners, which runs a European equity L/S hedge fund, who is still bullish on European prospects despite the crisis (See: Opalesque Exclusive: Why it is possible to be bullish on Europe right now here).

He said that the markets were holding quite well, and said the problems facing Europe lies in the state of finances but added the banks were now fairly well capitalized compared to year or two ago.
-Precy Dumlao

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Ex-Man manager combines sustainable investing with AI/ML[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Dr. Richard Bateson, quant fund manager and physicist, has recently

  2. Other Voices: "Winner-take-all" dynamics and hedge fund investing[more]

    A growing stream of thinking in microeconomics is the concept of "winner-take-all" dynamics. The idea seems simple. A combination of networking economics and classic economies of scale creates situations where there are just a few dominant firms or economic agents who are able to capture significant

  3. Investing - How Chipotle's comeback attracted big data robots and value investors alike[more]

    From Forbes.com: When William Ackman's ailing hedge fund Pershing Square Capital Management bet $1 billion on shares in Chipotle Mexican Grill beginning in July 2016, the stakes couldn't have been higher. Pershing Square was reeling from what would eventually be a near $4 billion loss in drugmaker V

  4. Gondor Capital sees challenges ahead for financial markets as two hedge funds post strong gains in Q1[more]

    Komfie Manalo, Opalesque Asia: Vincent Au, portfolio manager of New York-based hedge fund firm Gondor Capital Management believes that the remaining of the year would be challenging for the financial markets even as his two hedge funds maintain

  5. Service Providers - Colemore launches fee tracking service for limited partners[more]

    Following Colmore's successful launch in January 2017, the firm has announced the launch of FAIR.. FAIR is designed to help private equity investors independently validate fees and incentives charged by underlying managers, saving time and providing an extra level of comfort. There is a glob