The potential disappointments were there in Draghi’s OMT policy announcement. The markets didn’t care, however, as the perceived tail risk of sovereign default was taken off the table as was a Euro banking collapse circumvented by the LTROs.
Central bankers are closing the door on all investments x/ equities and with the ambiguity of stock valuation coupled with massively under invested money managers the chase is on. We are looking at some “catch up” trades, in financials, which also benefit from the housing recovery, for example.
The ECB announcement is only anesthesia, in our opinion, but we know that markets can run and remain comfortably numb longer than you think. We think earnings disappointments will now be the next big hurdle for equities. The big question is can the market see through them? Stay tuned.
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