Weekly Market Comment

September 19, 2011 The Week Gary Thayer, Chief Macro Strategist Sentiment improves as policymakers address problems The U.S. stock market rallied last week as concerns about the European debt crisis eased slightly. European debt problems remain a long-term threat to the global economy but at least for now, central bankers have agreed to ease a dollar shortage. This reduces the risk of a near-term liquidity crisis. A week ago investor sentiment was very negative. The Europeans have been trying to address At the beginning of last week, the U.S. stock Greece’s debt burdens for several years. The goal market was testing the early August lows while has been to work through the problems over time. several European stock markets were making new However, when investors fear that the problems 2011 lows. This stock market weakness showed are getting more severe, a liquidity crisis can that investors were reducing risks by decreasing develop on top of the long-term funding problems. exposure to European debt problems. Of course, a liquidity crisis can aggravate the long-Unfortunately, reducing investments in Europe term problems, reducing the chances of working reduces the supply of dollars to European financial through those problems. institutions. This drop in funding could have created a liquidity crisis if policymakers had not For example, as investors reduce their exposure to acted. The good news is policymakers recognized European debt problems, ...