For what seems like ages now but really dates back only a few highly regrettable years, Wall Street has been the butt of a relentless barrage of badmouthing, in the main, we must admit, richly deserved. But one thing that it can't justly be accused of is a lack of patriotism, especially when that noble impulse inadvertently happens to coincide with an opportunity to make a few extra bucks.
So it was with great verve and enthusiasm that it staged a rousing rally last week in anticipatory celebration of Independence Day. Even absent their actual presence, you could hear the music, see the flag.
Not that brokers and bankers and all the worthies who labor in the canyons of capitalism hadn't reason to celebrate, if only because bonuses were back, generous as ever, and gas prices had come down, which meant they make the trip to the Hamptons every Friday without borrowing from their kids' piggy banks.
Even more inspiriting, though, despite the bellowing importuning of the envious press, except for a few thorough rotters, they hadn't spent so much as two minutes in the slammer. And it hasn't been for lack of trying by the SEC, which does, however, seem to have trouble distinguishing a Ponzi scheme from an extra-large pizza.
The rally that the Street put on last week was a real nifty one. It came pretty much out of the blue, was well paced and widespread, ending the second quarter and starting the third on an upbeat. In its lack of any evident catalyst, apart from Greece's not going under—yet—(more of that below) it looks at this point more like a short-term bounce than a sustainable upswing.
But, so what? All investing is short-term these days, so if you're going to play the market, you might as well get used to it. The trick is to keep tuned to sentiment and be ready to buy when bearishness becomes epidemic, as it threatened to become a few weeks ago, and be willing to dump when bullishness is rampant, as it will be should this rally go on for a few weeks more.
And, of course, happy holiday!
GOLD, WE COULDN'T HELP NOTICING, has lost a bit of its glisten. It's had a wonderfully long run and is entitled to take a breather. But we couldn't resist passing along a note from Matthew Menken, a savvy reader, who reports from London that the first gold vending machine opened in London on Friday in a shopping mall. Supposedly no security guards are necessary because the operators claim "the most sophisticated" security is being used.
Prices are updated every 10 minutes. For buys greater than 2,500 British pounds you have to scan your passport.
We fervently hope for the sake of all those fluttering gold bugs that the introduction of a gold vending machine isn't a glittering negative indicator for the yellow metal.
HOW DO YOU SAY "WHEW!' IN GREEK? In whatever language the globe over, political movers and shakers, finance ministers, banksters, dabblers in precious metals, traders in virtually everything tradable and investors whatever their proclivities breathed a sigh of relief last week when Greece's Parliament voted to accept a no-nonsense regimen to put its acutely troubled fiscal affairs in order.
This splendid act of responsible governance was inspired by deep-rooted patriotism. Although we won't deny that the country was teetering on the edge of economic ruin, and unless it agreed to tread the straight and narrow it wouldn't get the 12 billion euros the European Union and the IMF were supposed to toss its way as an installment on the 110 billion-euro loan extended to it last year, which just might have played some modest role in persuading the lawmakers to give the proposal a thumbs-up.
Not all the citizens, it may shock you to learn, were overjoyed at the prospect of tightening their belts or losing their jobs, but then—sigh!—you can't please everyone. In sizable numbers, these disgruntled folks took their complaints to the streets turning the air blue with imprecation (you didn't need a translator; a glance at their horribly and venomously contorted faces was more than sufficiently eloquent).
And not a few of these unhappy souls sought to express their discontent more tangibly by heaving rocks at the Parliament building. Athens, of course, is the birthplace of democracy and it struck us we Americans might do worse than follow the lead of its inhabitants and, as the occasion warranted and if you happen to be in the D.C. vicinity, rain stones on the Capitol to encourage our slumbering representatives to bestir themselves or at least dream up some semblance of positive action.
We can't say, for that matter, that the European Union covered itself with glory as it bickered publicly and loudly over how to deal with Greece. But, then, every nation for itself—and there are 27 of them in the EU and 17 in the so-called euro zone—is the group's vaguely Darwinian modus operandi. As a result, its deliberations often resemble nothing so much as the haggling in a crowded fishmonger's shop over the catch of the day.
The irony in this instance is that Greece will have spent its 12 billion euros and have its tin cup out again before the snow falls (and that's an optimistic assumption). So if you happened not to be paying all that much attention to this recent chapter in the long-running Greek tragedy, don't fret—you're sure to get a chance to witness the sequel.
Better yet, a new "improved" financial package coughing up more euros and effectively stretching out the required payback schedule is in the works. Which means you needn't worry too much about missing this sequel, either, since you can rest assured you'll always be able catch the next one.
WHILE WORLD EQUITY MARKETS, most definitely including ours, took heart from the happy if temporary ending to this cliff-hanging episode, permitting Greece to escape the ignominy of defaulting on its sovereign debt, the response among professional economic and market kibitzers was not universally sanguine. Among the grumpiest was the irrepressible and inevitably iconoclastic Barry Ritholtz. From his perch at Fusion IQ, he notes the immediate tendency to "blame the profligate Greeks."
Barry has no illusions about the state of the Greek economy, citing, among other absurdities, the government's obscene spending, overly generous pension plans and similar sins. Too much of its populace, he thunders, are "tax scofflaws." In short, he agrees, Greece is a mess.
But, hey, he claims, as even a casual visitor can attest, none of Greece's financial shortcomings are a secret. So why the big surprise and feigned outrage that profligacy is among its weaknesses? For here as elsewhere, Barry firmly contends, the blame for lending to insolvent borrowers, be they individuals, institutions or countries, first and always belong to the lenders. If they can't independently determine who is creditworthy and who is not, for heaven's sake, what, he asks, is their role? They might as well "leave piles of money around," he snorts, "and ask borrowers to self-regulate their appropriate credit limits."
The invariably perceptive Michael Darda, of MKM Partners, whose take on markets and economies we've quoted from time to time, continues to view with undisguised and profound skepticism (which we share) what he calls the bailout/austerity/tight-money policy mix that the European Central Bank (ECB, for short) has chosen to deal with the Old World's fiscal woes. Nor does he hold with the notion that Greece's latest avoidance of default is "an inflection point in the euro-zone sovereign-debt crisis."
On that score, he points out that debt spreads in Ireland and Portugal are within spitting distance of all-time peaks, indicating both are leading candidates for another rescue. And although each of their economies is not very high on the euro-zone pecking order, together they're saddled with enough of a debt loan to create a real headache for the European banking system.
More worrying still by Michael's lights are Spain and Italy, which have much larger economies that are heavily laden with debt. Prices and wages in both countries, he feels, are too high compared with the rest of the euro zone, and a dose of deflation might be necessary if both are to remain part of the European Monetary Union. The ECB might, if it chose, lend a helping hand with a more accommodative monetary approach. Instead, alas, there are expectations that, perhaps as early as this week, the bank will tighten further.
Michael reiterates his conviction that the economically weaker sisters of the euro zone—Italy, Ireland, Portugal, Spain and, of course, Greece—cannot withstand higher funding rates and tighter liquidity, "yet the ECB continues to believe that bailouts/austerity can coexist with tighter money." As he comments wryly, the "events of the last year suggest otherwise."
Dipping into financial history, he notes the shivery similarity between our beloved Fed's misguided decision in 1936-37 to tighten monetary policy during a "savage fiscal austerity" and what the European Central Bank seems hell-bent on doing today. The Fed's action precipitated the 1937-38 "recession within the Depression," Michael recounts, and the ECB's version of that policy "is not likely to end well in the euro zone, either."
Or, as the quote by Albert Einstein atop Michael's commentary nicely summed up his point: "Insanity is doing the same thing over and over again and expecting different results." Poor old Albert obviously would never have made it as a central banker
No comments:
Post a Comment