an you believe what is going on in the European debt markets? A few months ago the sky was falling and the euro itself was given no more than an even chance of surviving. Now investors cannot get enough of the sovereign bonds issued by Spain, Italy, Portugal, and others. The euro, to growing worry, is at a ten-month high against the dollar.
It makes no sense. So do not get too comfortable with the thought that Europe is in recovery mode. Better to brace for a serious correction. The Dow Jones industrial average is now at 13,650—not its record in 2007 (October 9, when it hit 14,164), but getting close.
On Monday the FTSE Index in London hit a record. This exuberant trading activity is highly vulnerable to the kind of reversal in the European debt markets that it is now perfectly sensible to anticipate. At the moment the action in the European markets is bubbly as Champagne.
Last Thursday Madrid sold $6 billion worth of bonds with mixed maturities at the best prices it has achieved in nearly a year. Spain’s benchmark 10-year bond is now priced at 5.03 percent; a year ago such an issue would have cost Spain more than 7 percent—the level at which financing sovereign debt becomes unaffordable and talk of bailouts begins.