GB Capital

The massive post-GFC Quantitative Easing (QE) in the USA, EU, and now in Japan has repaired the global banking systems balance sheet. Debt of various qualities, worth trillions of dollars, was moved from struggling banks to the central banks at book value where it is likely to run out to maturity or rollover.

Whenever we talk about rescuing overleveraged Europe it is always about Spain, Italy, Portugal, Ireland, and Greece the European periphery loaded with debt that they cannot possibly repay. But a closer look at the recent IMF data reveals that German and French banks need rescue more than anybody

We had nasty stock market corrections in the middle of 2010, 2011 and 2012 caused by political uncertainty about Europe's debt. In times of market declines it is good to remind ourselves the difference between a correction and a bear market.

Here we go again for the third time in as many years. Comes European summer and, instead of planning holidays in southern Europe, investors are confronted with supposedly irreparable debt problems in Greece. The bears claim Greece is bankrupt and with the 30% or so interest on its debt and anti-growth austerity being imposed on them there is not much hope for recovery despite the recent large debt write-off. Gloom and doom outlooks prepare us once again for Greece defaulting on their debt, leaving eurozone followed by economic collapse of Spain, Ireland, Portugal etc.

The powerful macro forces that drive global economy and move stock markets have changed direction post the peak of the Global Financial Crisis. Governments are tightening their Fiscal Policies and Central Banks are expending their Balance Sheets (also known as quantitative easing or money printing) as part of globally synchronized deleveraging process. The two opposing forces pull the global economy in different directions. The fiscal cuts are slowing economic growth but are counter-balanced by a stimulative nature of the Central Banks easing.