IB Net Payout Yields Model

Will European Debt Crash the Markets?

After a day like today the question about European debt becomes a big scare. Will the market continue to plunge or was that swoosh around 3pm ET the bottom? Nobody really knows but I do like the fact that just about every guest on CNBC suggests more pain tomorrow and down the road. Some are already dismissing the lows because of the questioned trades. Interesting though history has typically dictating that such rebounds from the lows of the day turn out to be the bottom.

Interesting note from First Trust on past debt crisis. The Latin American debt crisis in the 1980's had a bigger impact on US banks then this crisis. Maybe it can be argued that the European countries will impact the economy more but do you really think Italy and Spain will default? Without them running into problems, Greece and Portugal aren't big enough to do damage.

Based on this chart, the 1980's saw significant market gains even with all the countries defaulting on debt. With a positive vote from Germany tomorrow, Europe may avoid any defaults. Todays price action also pushes Germany to act quicker now. The fire engines are now on high alert to put our the financial fires that are spreading.

The fear may be great, but history suggests that leads to great buying opportunities. After all every stock in our portfolio traded at exceptional values before this crash and is probably what has held them back. After the route this week, these stocks just got 10-15% cheaper to boot.


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