Friday, June 17, 2011


A shift in the market sentiment has awaken me from my “long” slumber. What a year it has been since I last wrote. It’s been really fun comparing what I wrote to what happened. Certainly the low interest rates and government support have kept this market going despite all the troubles in the world!

This is my simple recollection of events in my head (work has made recent events a bit of a blur, so do forgive me if this is a bit oversimplified and ignorant):

Mid ‘10: “Greece is failing, maybe Spain next, whatever”—market stalls a little, then moves up, gold continues its climb, treasury yields fall back down

Late ‘10: “Earnings looks good, we might have ourselves here a recovery! Oh looks like Europe is getting itself together for a bailout”— market continues to climb, gold continues to climb, USD falls, EUR strengthens

Early ‘11: “Oh man, look at Japan. Down with the reinsurers! Gosh I’m scared! Well..shouldn’t be the end of the world”—market dives for a bit, then continues to climb (dead cat bounce), while oil prices shoot up

Mid ‘11: “Greece is still failing? Spain might follow? Didn’t they take care of it? What’s happening with the US government? Can they balance the budget? What about China? I hear they’re having some problems…”—market begins to hesitate

Which brings us to the present after 4 bullet points. We’re at a state of flux in the economy and the markets. Lots of things are going on in the market. The biggest news these days are always about the perpetual downgrades of Greece, the debt crisis in Europe, the impending crisis in the US and China. The optimists of a year ago seem to have fled the scene.

Reuters has an article that describes this threat to stability:

“European governments are keen to avoid a "hard default" as that could threaten banks throughout the euro zone and further afield.

They are therefore discussing a "soft landing" in the form of a debt extension or voluntary rollover by creditors, but some of the proposals have been criticized as default by another name.

Countries most vulnerable to contagion include Portugal, Ireland and Spain, analysts say, with Italy, Belgium and even France as well European companies possibly affected as well…The big contrast with the Lehman Brothers collapse is that this crisis has been building for a long time. Some analysts say world leaders will not allow it to spiral out of control.” (1)

Now I don’t know who these analysts are, but yes these world leaders can and will let Greece fail. Why? Politics, greed, and power. Would Italians step in and want to put up money when their country’s budget is in deficit? Same goes for the Irish, Spanish, Portuguese, etc. Would the wealthy Germans use up some of their coffers to pay for the Greeks’ mistakes? If they save Greece, will they have to also save the Irish, Spanish, Portuguese, and Italians?

If the U.S. Government wouldn’t even step in to save Lehman Brothers, the homegrown investment bank, why would these guys save Greece? Call me cynical (which I am), but these guys (Europe ex-Greece) won’t think it’s a big enough threat to their countries, until they see it in front of them!

Wish it wasn’t the case, but history does repeat itself.

(1) Reuters article: