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Markets Close to 'Dire Straits, Cathartic Moment': Economist

Monday, 28 Nov 2011 | 2:45 AM ET

There will be huge opportunities for investors over the next 16 to 20 months because markets will soon reach a "cathartic moment" as they head towards total dire straits, a chief economist told CNBC.

"When markets are down 25 or 30 percent that is when you have a cathartic moment. When the policymakers come to their senses and there will be a solution ultimately," Steen Jakobsen, chief economist at Saxo Bank.

He said markets could even see this before the December 9 European Union summit to tackle the euro zone debt crisis and thrash out details to the pledge made at a meeting last week by the trio of leaders – Germany's Angela Merkel, France's Nicolas Sarkozy and new Italian Prime Minister Mario Monti - to propose legislation that would enable modifications to treaties to push for further integration economically and politically between euro zone countries.

Reports at the weekend suggest that the French and the Germans are exploring a rapid route towards fiscal union that would bypass the more protracted treaty change route, which would need to be passed by all 27 member states.

"As markets fall 25 to 30 percent then you see all of a sudden that they will start to move forward instead of having this one step forward and two steps back. We are getting very close to this moment," Jakobsen added.

He added that as we head into a liquidity crisis and the end of the cycle approached, investors should get prepared to invest as full risk on would return.

Echoing this view was Piers Curren trader at Amplify Trading who admitted his was an aggressive call but backed up by fundamental issues.

"I feel that we have reached the tipping point in this crisis. The behaviour of the markets is very emotional at the moment and these are over exaggerated moves that are worse than reality.

"We will get the necessary changes which are fiscal union and the agreement towards that on the 9th of December followed by the ECB being rolled out in a much more powerful way, that's the end of the story here," Curren said.

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