CITI: We Have Reached A Critical Point In The Crisis, Things Could Get A Lot Worse

By admin on June 20, 2012

Citi’s veteran technical analyst Tom Fitzpatrick reminds us that the crisis in Europe has not gotten any better. In fact, government bond yields suggest things may be getting worse.

He spoke with King World News about the recently announced Spanish bank bailout plan.

Overall we continue to push higher, both in terms of Spanish yields and in terms of the interest differential we are seeing between Spain and Germany, which has to be an increasing concern.

Fitzpatrick argues that the market has become increasingly complacent about what’s going on, and that it has been desperate to latch onto any good news. However, unless the good news sticks, we could be setting ourselves up for a bad situation.

What we have seen recently (in terms of counter-trend rallies) has really just been knee-jerk reactions to any positive news such as the Greek election results or the Spanish bailout announced last weekend. However, what we are noting is the magnitude of the reactions to the trend and the time frame are becoming less.

This suggests that the market is no longer prepared to take at face value the words and the calling of meetings in Europe or the solutions being offered on a national level, rather than a European level.

This means we are reaching quite a critical point here, where Europe is going to have to start walking the walk, not just talking the talk, and coming up with some concrete solutions to address the deteriorating situation. If they don’t, then things are going to get even worse.