Global Growth Momentum vs Wall Of Debt & Spending Cuts

I was speaking to an old school friend yesterday evening who had bought into options of a large bank mid-last week. He told me about the positive surprise when he looked at the Monday open. For a while he thought his eyes were playing tricks on him. The market moving with such a big percentage move early morning CET was something he'd not ever seen. His option which was out of the money (worthless) Friday suddenly moved back into the money. As he'd already written off this particular investment Friday afternoon, the feeling of joy must have been similiar to mine on my EURUSD position. I had also come to conclusion that it was just a question of how large the loss would be.

The big difference though: He didn't feel the need to sell the options yesterday, telling himself maybe we'll see another 3-4% move and the option will double-triple. I couldn't have done that. 

I am wondering at the moment whether the currencies situation is clouding my judgement on the valuation of the market, i.e. whether selling into the strength of banks Monday was a mistake. 

Yesterday on Bloomberg TV Mike Holland (Holland & Co.) said that this european "TARP" is a game changer for sentiment (equities at least). Thursday destroyed sentiment, Monday rebuilt it. Which leaves us neutral I guess? [Edit: Actually on second thought: It leaves us back in down trend, just not panic downtrend] There is still some decent probability, according to Barclays, that the global growth momentum will compensate or even outweigh the negative from the spending reductions of the PIGS. (I wonder how US, UK spending reductions, debt reductions will be possible though without reducing global growth!)

However EURUSD is a different matter. The line of finance ministers: We'll do everything to protect the EUR is just noise. The market is showing us (1.27) that with this liquidity and long term debt problem, the trend is down. They sold into the strong upmove yesterday quite fiercly. On the chart it looks like it failed horribly to break out of down trend in my view.

It also reminds me of the constant talk of the SNB that they didn't want EURCHF falling in an unoderley fashion. They spent more than 40bn at 1.50 and probably another 30bn at 1.43 propping it up [Edit: Now we're around 1.41]. They're doing the classic fighting the tape and doubling up into a shit position (based on fundamentals). That's why I personally have no faith whatsoever in the "we'll fend off the wolf pack" bullshit. 

It's not speculators, not hedge funds and no nasty "wolfs". It's bond portfolio managers, big banks managing risk of their positions. They're being forced to buy protection because the countries who borrowed money aren't using it wisely, on the contrary in fact. And even though many countries know they're debt is spiralling out of control, they won't be able to pass tough measures until their respective populations see that there's no way around brutal cuts. From that point of view it's good that the world gets a glimpse of what happens when you run your country into a wall of debt as it could bring back some modesty and spending discipline.