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Europe's Return of Risky Debt: Sign of Hope or Dangerous Omen?
EWI's new, November European Financial Forecast highlights the resurgence of a risky debt -- and its implications for the region

By Nathaniel Williams
Mon, 12 Nov 2012 13:30:00 ET
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The news coming out of Europe is so consistently bad that you almost become immune to it. But just as a reminder, let's recap recent developments. 

  • Unemployment in the Eurozone reached 11.6%, an all-time high.
  • The ECB and IMF lowered their 2012 GDP forecasts from .1% to .4% contraction.
  • Spain is near bankruptcy -- and Banco Popular is 92% off its 2007 all-time high.
  • Italy has more debt than Greece, Portugal, and Ireland combined.
  • Euro-area manufacturing output fell to its lowest level in more than three years.
  • The UK offered the most 3rd quarter profit warnings since 2008.
  • And most European stocks are still well below their 2011 highs.
By all accounts, the economic and financial realities in Europe seem dire. Yet if you look at the behavior of some credit traders in Europe, you'd never know it. Indeed, as editor Brian Whitmer shows you in the new, November European Financial Forecast, "one measure of complacency has surpassed [a] prior sentiment extreme."
The iTraxx European Crossover Index monitors the movement of credit-default swaps (CDS) on 45 sub-investment grade corporations in Europe. As you can see in the chart above, CDS rates have completely reversed from their high. The persistent fear of corporate default in 2009 has given way to October 2012's all-time low.
In other words, these credit traders now exhibit "full-fledged confidence in corporate debt" -- and they're more confident than at any other point in the past four years, despite the barrage of ominous developments.
Is this new-found optimism toward risky debt a sign of hope -- or a dangerous omen?
The answer is crucial to your investment strategy and your ability to find opportunities in the region -- and you can only read about it in the new November European Financial Forecast.
In it, Whitmer cuts through the confusion with crystal-clear Elliott wave analysis, sentiment observations and momentum considerations. And he tells his readers that "some of the biggest puzzle pieces to date are now falling into place."
Find out what these puzzle pieces portend for your portfolio -- and get ahead of the trend right now. Details>>
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Each monthly 10-page European Financial Forecast gives you timely, Elliott wave analysis and forecasts of the DAX, FTSE, CAC, Euro Stoxx 50 and more, plus commentary on economic and social trends. It's an invaluable ally to help you navigate European bourses

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EFFThe European Financial Forecast gives you an invaluable big-picture outlook for major European bourses to give you an edge over the investing herd.

Each monthly 10-page issue gives you timely, Elliott wave analysis and forecasts of the DAX, FTSE, CAC, Euro Stoxx 50 and more, plus commentary on economic and social trends.

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