Spanish bank stocks have been leading the decline internationally, with US financials and European markets in general following in sympathy. Along with the issue of whether budget targets can be achieved, there are also questions about bank solvency. In the US, expectations have started to rise regarding the Fed potentially extending its 'operation twist' program (perhaps including MBS [mortgage backed securities] purchases) and/or maintaining its zero-interest rate policy through 2015. We think the Fed stands ready to do whatever it can to prevent growth slowing too much. With no end yet in sight for financial repression (interest rates held below the inflation rate) we are maintaining our position in gold (see Weekly View, 3/26/12).

David Fuller's view Europe remains the soft underbelly in terms of investors' collective fears. After all, problems have been contained, not solved. The troubling conundrum is how to match austerity with economic growth. Pundits speculate over the timing of Greece's exit from the single currency and the number of other European countries likely to follow.

Yet despite dire warnings from a famous former hedge fund manager, I maintain that Europe's problems, serious although they are, have lost the capacity to terrorise investors elsewhere to the degree that we saw last year. After all, we can see the path that is being taken, although not necessarily where it leads.

Daily crisis meetings for European leaders, seemingly in perpetuity last year, have given way to an eerie calm before the next battle, thanks to clever ECB President Mario Draghi's Long-Term Refinancing Operations (LTRO). To bend rather than break the central bank's charter, he found his own version of QE and it has bought time.

Having embarked on this journey to preserve the euro and therefore the ECB as well, Mr Draghi is no more likely to turn back than Mr Bernanke, although he would like the politicians to do something creative in terms of fiscal union and GDP growth. Meanwhile, if Spanish bond yields rise to an unacceptable level he will either lend banks more money to bid them lower or find a way for the ECB to buy them outright. Neither Germany nor Finland nor any other country is likely to protest too much because they do not have a better idea, if the political construct known as the euro is to live on.

In European markets today the Euro STOXX Bank Index (weekly & daily) encountered support in the region of their historic lows. This Index is a key litmus test for market sentiment in Europe, probably more important than Spanish 10-Yr bond yields (weekly & daily) which have been a focal point of concern recently.