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Euro-Zone Debt Crisis Escalates

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11/27/2010

The euro zone's

sovereign debt crisis escalated Friday as the market homed in on Spain as another potential weak spot, leaving officials scrambling to quell investors' fears. Spanish Prime Minister Jose Luis Rodriguez Zapatero moved to dispel the growing anxiety surrounding the country's fiscal position Friday, saying there was "absolutely" no chance the euro zone's fourth-largest economy would seek a bailout from the European Union. But his attempt to calm the markets had little effect, with the euro tumbling and the selloff in Spanish and Portuguese sovereign bonds continuing.

 

    
The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union. The refrain was picked up this week by German finance minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag. While Germany's public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.
    
Time provides a great overview of why “It’s Not The Economy” that investors should focus on: A recent story on the daily peregrinations of the stock market concluded that, at least for the day, “U.S. stocks erased their losses to finish in positive territory, as investors weighed an improving domestic economy against heightened global concerns.” That seems an innocuous enough statement. The markets did well because investor concerns about the economy were allayed by some data or shift in sentiment. Pretty simple, right? Yes, but also pretty wrong.
   
The bugaboo of value investing is the so-called “value trap.”  It’s a stock that looks cheap, but turns out to be cheap for a good reason and continues to go down or perform poorly.  The reason that value investors refer to such stocks as value traps is because they are difficult to identify.  After all, if you are buying something because it is cheap relative to various metrics, dropping in price often makes it theoretically more attractive.
  

More Good Stuff:

  

Next Debt Crisis May Start in Washington: Bair

Avoiding Value Traps

Put Aside the Focus on the Economy

Spain Depends on Budget Cuts to Stem Contagion as Zapatero Warns Investors

Is Your New Neighbor a Squatter?

EU rescue costs start to threaten Germany itself

Euro-Zone Debt Crisis Escalates

Fears of Domino Effect Pervade Europe

 

 

  

 
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