Back in the day, the day being college, I once took a class that I received no credit for taking.  I took it because I wanted to learn more about geology.  The thing that intrigued me about geology back then was the enormity of change that took place over long periods of time.  Oil, for example, only becomes oil after tens of millions of years of dinosaur decomposition combined with unimaginable pressure.  The same for diamonds.  Diamonds are just coal crushed under tremendous pressure for eons.  Well, I find it interesting, anyway.

Like geology, the politics of finance often requires time and tremendous pressure to get something done.  Regarding the debt issues in Europe, this is certainly the case.  How long has the market been reacting to the European financial crisis?  Well over two years now, and the fact is there has been tremendous pressure to get something done about the issue.  The problem is the market wants resolution now, much like a spoiled child.  It simply does not have the patience to watch the creation of oil or diamonds, even though the eventuality of the outcome is understood.   

This is the case for Europe, and anyone with clarity understands that Germany will not, cannot let the euro collapse.   

Mrs. Merkel again underlined her country’s commitment to the single currency and European integration, saying the euro was “much more than a common currency.  If the euro collapses, so does Europe.  Germany’s future is inseparable from Europe’s future.”  

So, like a glacier carving rock, Merkel patiently is working her way towards the ultimate solution of a centralized Eurozone government issuing Eurobonds, but to get there politically, she has to push through the pressure of politics.

Wall Street stocks were set to rebound on Wednesday on hopes the European debt crisis might ease after Germany’s top court smoothed the way for Berlin’s participation in bailout packages.  European stocks bounced back from a two-year low on Wednesday after the German court rejected lawsuits aimed at blocking the country’s participation in aid to Greece and other euro zone countries

Now we wait for the next step, which is the German parliament playing out its politics for its constituents.  Now we watch the political theater play out before we get to the decided outcome.  Now the market has a chance to stomp around and cry some more before the deal gets done, or at least done enough to assuage the fears of the market that nothing will get done.

The process of moving disparate governments toward a common goal takes time and pressure, just as does the process of making oil or diamonds.  In the end, though, the geological and economic realities win out.  In the end, we dig into the ground and find oil and diamonds, and above ground, we find a crisis resolved.  Now, if only the market understood this reality.

Trade in the day – Invest in your life …

Trader Ed