Is Euro saved?

You may have heard that the Spanish banks will get 100 billion euros ($125 billion), a bail out to save them. The market futures across the world immediately got lifted when the news came out. When I drove to work early morning today (I usually go to work very early before 6 AM), the Dow and S&P futures were up over 1%. I couldn't help but laughed and asked myself: has Euro been saved by this bailout? We had seen a very similar scenario less than a year ago when Greece got bailed out. Same euphoric  reactions we saw from the market that it seemed everything was fine after that. But in less than a year, Greece is going into a more dismal situation as I'm writing. Nothing will change this time. In a very simple way to decipher this bailout to see what has been really resolved: basically the Spanish government will get the money and then give the money to the troubled Spanish banks and the banks then use the money to buy the Spanish government bonds, which have become more and more difficult to sell in the open market. The fundamental problem of the debt crisis is still there without any real solution. Of course, with this bailout money, the immediate collapse of the Spanish banks can be avoided, just like Greece did not immediately kaput less than a year ago. But it actually only makes the whole situation even worse down the road. However, the market has become extremely short-sighted now. They only care about what is the immediate outcome. So I still bet the Euro will actually appreciate against the US$ over the next few months before resuming a more worrisome plunge. By the way, the stock markets today actually plummeted significantly towards the closing. So some rationality may still exist among investors.

By the way, I had an interesting bet with my son, who just graduated from the prestige Haas Business School of UC Berkeley and is now in Brazil for his last summer job with an investment company before starting his permanent job with PIMCO in August in CA. He is more professional now than me in theory of course with his formal economic and finance training. He thought Euro may appreciate a bit in the next few weeks but will start to decline again after end of Jul. I thought Euro will continue to appreciate longer over the next few months before plunging again. We will see who is right.