The fallout from the decision to offer almost $1 trillion to the socialist, welfare nations of southern Europe is hitting stocks hard today, as Citigroup (NYSE:C) has fallen below $4 a share, and about 12 stocks are falling for every one stock that has risen.
After the euphoria surrounding the bailout subsided, the market started to take in the consequences of the actions of the EU, and it’s beginning to understand the euro will likely not survive as a viable currency, at least with the EU as it stands today. Some believe it’ll narrow down to just a few fiscally sound countries that continue using the euro, along with the European Union as an entity itself.
This won’t happen in the short-term, but it could over the next decade or so, and probably will.
Don’t misunderstand this though, this is another bailout of banks; in this case European banks which are holding the debt of these countries.
The reason this is having such a dramatic effect on Citigroup and other major stocks, is the unsurety that accompanies the austerity measures included as part of the deal for receiving the bailout funds.
In other words, how much will this cut back on demand for products imported into the region in light of the cutbacks. That’s a major reason for the stock market performance over the last couple of days, and that will probably continue until the consequences emerge and we see how deep they are.
Add this to the same thing happening in China, as far as fears over growing inflation, which China is responding to by increasing interest rates and regulating their housing industry even more, and you have even more demand challenges which, again, we have yet to see what the ultimate fallout will be.
So China may have overstimulated their economy and Europe is a financial mess. Yet we have many in the financial media acting as if nothing is happening and we’re in some type of economic recovery.
If that illusion hasn’t been burst yet, then I’m not sure what will take the blinders off to see the extraordinary circumstances facing us now.