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Citi’s Fitzpatrick - Despite Rally, Crisis To Get Even Worse
Today top Citibank analyst, Tom Fitzpatrick, warned that despite the rally, if Europe does not take decisive action we will see this crisis accelerate. Fitzpatrick, a 28 year veteran and top analyst at Citibank, which has $1.3 trillion in assets, also said, “the concern levels are still there, and if anything they are becoming elevated.” Fitzpatrick also provided some excellent charts which illustrate the ongoing train wreck that is Europe. Here is what he had to say about the deteriorating situation in Europe: “Overall we continue to push higher, both in terms of Spanish yields and in terms of the interest differential we are seeing between Spain and Germany, which has to be an increasing concern (see chart below).”
Tom Fitzpatrick continues:
“We’ve now gone higher in terms of the spread between Spain and Germany on the 10-Year yields than at any time since the early 90s. Within the absolute level of yields, what we’re seeing is 10-Year yields moving significantly higher in Spain, through the 7% level.
You’ve effectively got a scenario where the yields for Spain and Germany are going in opposite directions. So the spread is widening out aggressively.
The Spain versus Germany 10 year yield spread has moved to new all time highs.
“This action is much more aggressive than we saw in the 1990s. So it’s definitely showing that the concern levels are still there and if anything they are becoming elevated....
Continue reading the Tom Fitzpatrick interview below...
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“So you are getting the most negative setup in that you are seeing, effectively, the yield curve bear flatten in Spain, while at the same time it’s bull flattening in Germany.
This suggests to us that we are continuing to see that dynamic where the level of concern in terms of the time frame is shortening, while the flight to quality and the flight to areas where you will get return of capital is still taking place.
We don’t yet see the Italian yields looking as stressed as the Spanish yields, but at the same time we have been pushing higher (in terms of yield). But we would have to argue that the yields, the yield differentials and the yield curve that looks most concerning at the moment, as well as the equity market, is that of Spain.
What we have seen recently (in terms of counter-trend rallies) has really just been knee-jerk reactions to any positive news such as the Greek election results or the Spanish bailout announced last weekend. However, what we are noting is the magnitude of the reactions to the trend and the time frame are becoming less.
This suggests that the market is no longer prepared to take at face value the words and the calling of meetings in Europe or the solutions being offered on a national level, rather than a European level.
This means we are reaching quite a critical point here, where Europe is going to have to start walking the walk, not just talking the talk, and coming up with some concrete solutions to address the deteriorating situation. If they don’t, then things are going to get even worse.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
The interviews with John Mauldin and Egon von Greyerz are available now. Also, be sure to listen to this week’s line-up of other KWN interviews which include Gerald Celente, John Embry, Bill Fleckenstein, MEP Nigel Farage, and Michael Pento by CLICKING HERE.
Eric King
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
June 19, 2012
