European government debt problems surfaced over a year ago. Initially, Greece
was the only country struggling to access the capital markets, yet the problems
have continued to spread and are in no way contained. Although European countries
created a stabilization fund and the ECB has bought European debt on the open
market, bond prices have continued to fall. Yet, even in the face of falling
government bond prices, global equities have continued to rally.
A similar situation occurred in 2007 when stocks rallied despite a crumbling
mortgage market. In early 2007, the lowest rated subprime mortgage bonds began
to fall in price (Figure 1). However, by October, 2007, stocks made all time
highs.
Figure 1. Subprime Mortgage Bond Prices in 2007
The stock market is making new highs despite yields of European sovereign
bonds showing signs of stress. Below are the charts of Irish, Italian, Portuguese,
and Spanish bond yields.
In 2007, as the subprime mortgage market was in turmoil, the equity market
rose to all time highs as investors ignored the risks to home prices and the
economy. Now, just four years later, equity investors are again overlooking
the turmoil in credit markets. Could investors be making the same mistake they
made in 2007?
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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