Week of 10/23/11

Portugal Enters ‘Grecian Vortex’

You knew in your well-informed heart the “solution” to Europe’s spiraling debt crisis was inadequate and that the market’s joy jump would end badly. Now you have evidence. The implosion of Greece is so last week. The new squid on the dock: Portugal.

Telegraph: “Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece … raising concerns that the EU summit deal may soon be washed over by fast-moving events. … ‘Portugal appears to have entered a Grecian vortex…’ said Simon Ward, of Henderson Global Investors. He said the ECB must cut interest rates ‘immediately’ and launch a full-scale blitz of quantitative easing of up to 10pc of Eurozone GDP.” Events will force the ECB to override a German veto and print money, possibly driving Germany out, which would effectively end the union. “Japanese investors who bought the first EFSF bonds this year under entirely different assumptions are facing big losses as the instrument loses market credibility.”
— 10/28/11

All Bailouts, All The Time

Cullen Roche: “In the last few years we’ve witnessed unprecedented government intervention at every twist and turn. … It’s been an endless parade of government ‘fixes’ that don’t appear to have really fixed anything. The recent Euro ‘fix’ is the latest and greatest case of government intervention. …

“One of the keys to succeeding in this market during the balance sheet recession has been discovering government interventionist policies, front running them and selling the news. … There is no buy and hold. There is no value investing. There is only one big roller coaster of volatility based on decisions of clueless politicians who fail to grasp our monetary system, fail to understand the impact of their policies, but will do anything to make sure the portfolios of wealthy politicians don’t get blown to smithereens. Unfortunately, like any trusty rollercoaster, we get off right where we got on.

“While all this government intervention might not be doing much for capitalism, the failure to understand it is surely detrimental to your portfolio’s well-being. Sadly, this is what ‘investing’ has come down to in the day and age of the ‘New Normal.'” — 10/28/11

Reasons For Patience

Gary Gordon offers three reasons for patience in the market: European banks still don’t trust each other, as evidenced by a still rising LIBOR; investors are reacting to macro news instead of healthy earnings and the good macro news from Europe is already priced in; and smart money is taking profits, as evidenced by average volume in yesterday’s 3.4-percent spike and heavy selling of SPY into strength.

The Big Picture finds the recent rise to be “Stunning! … This kind of initial move in the S&P 500 in just 17 trading days has happened only six times in the past sixty years. … The question is where to for year end? Is this the November 1998 melt-up after the Russian debt default and failure of Long-Term Capital Management [post 3-mo return +13.5pc] or is it the December 2008 head fake before the March 2009 bottom [post 3-mo return -17.4pc]?” — 10/28/11

Greenspan: EU Will Fail

Former Federal Reserve Chairman Alan Greenspan told CNBC that the EU is doomed to fail because its northern and southern cultures are too different.

“At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t,” he said. “Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits. … it simply can’t continue to work.”

He’s worried about the US, too, because the EU crisis coupled with the US budget deficit and debt could spark a bond market crisis, but it’s “very difficult to predict when a bond crisis could happen.” He supports the Simpson-Bowles plan to cut the deficit, saying “the presumption we can rein in our budget deficits without inflicting some fiscal pain is utterly unrealistic.” — 10/26/11

Stop Breeding

Paul Farrell at MarketWatch is “mad as hell” because “America has been hijacked by an irrational, dark force that’s consuming our political system.”

What really has him down, however, is overpopulation, thanks to the new book, The Price of Civilization: Reawakening American Virtue & Prosperity by Jeffrey Sachs. There are already too many people and we’re getting more every day, without enough resources to go around. Sachs: “Just 12 years after the arrival of the 6 billionth individual on the planet in 1999, humanity will greet the 7 billionth arrival this month.” This “7 billionth person is cause for profound global concern. It carries a challenge: What will it take to maintain a planet in which each person has a chance for a full, productive and prosperous life, and in which the planet’s resources are sustained for future generations? How, in short, can we enjoy ‘sustainable development’ on a very crowded planet?” Conclusion: We can’t, so brace for impact. — 10/26/11

Dimon: Fix Unemployment

JPMorgan CEO Jamie Dimon told the AJC it’s the lack of confidence to take risk, to start companies, that has weakened this recovery, unlike past recoveries. The anger at Wall Street, Washington and the economic malaise are manifest because of an economy that isn’t putting Americans back to work fast enough. “I think the recent upset is that it’s been a long time of 9-percent unemployment,” he said.

He thinks America needs a new “Marshall Plan” that should start by fixing the tax code. “I think America is strong and it’s going to come back. I personally think the people who are busy demonizing business are doing it damage. Business is the economic engine.” — 10/26/11

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