Lets look at this line of thought, which seems to have played out so far today:
Setting: Friday news flow = terrible.
“Someone has to do something!” Almost on cue, the rumor starts spreading that the IMF is ready to bail out Italy. This action – given the massive scale of Italy’s debt, the austerity packages passed, lack of government, and the scale of IMF lendable resources – seems in itself a little bit like pouring a glass of water on an oil fire. Equity markets decide not to care, and proceed to rally anyway. “Buy buy buy!”
IMF: “Sorry. We’re not doing this, you’re horribly misinformed.”
Equity markets: “You’re not doing it… yet! Let’s ignore the news from the source and keep buying.”
Rest of the (sane) world: …
So… if the IMF is not doing anything yet, or even if they would do something… the effect would be… an increase in prospects? Does anyone smell momentary short covering? Precipitous falls ahead? I have a bad feeling about this…