Editor’s note: This article was first published in February 2012 on 1 February 2012, between the ECB’s two three-year liquidity operations for banks (December 2011 and February 2012); its market call refers only to that moment.
I’ll be quick and to the point this time. We’ve just heard that the ECB will inject money into the banks to clean up the financial system. That is exactly the kind of measure the markets love to hear, and stock markets have in fact already responded positively.
Now comes a moment of confidence (probably a short one) in which the stock market will rise, as long as nobody discovers the magic trick, or the traffic-light effect. Once the truth comes out, that injecting liquidity into the financial system won’t improve the economic situation, the light will go from green to red without passing through amber.
This could happen within weeks or months. The point is that your money should be out of the stock market before it does, because with the amount of money about to be lent to the banks, if the measure ends up not working, the situation on the stock market could turn negative in unpredictable ways.
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Featured image: Old Photo Profile, CC BY 2.0, via Flickr.
