If you go down to the woods today,
You’re sure of a big surprise.
Today’s the day the teddy bears have their picnic.
Sorry about that, but I have been spending the last week with three grandchildren under 8. I think you will find the tone of the rest of this note pretty grandmotherly too. Me, I have experience with tantrums, whines, potties, and bears.
Today the teddy bears are out in force again, helped by the newspaper and TV headlines switching from “happy days are here again” back to “the end is nigh!” We seem to be back to the latter, perhaps because no major earnings reports of economic data are expected this week. Jamaica is in the hands of drug gangs; Thailand is not smiling; an American-born Yemini preacher is backing Jihad in his homeland; North Korea did sink that South Korean warship; Australian bank note paper was sold by a government-owned entity using prostitutes; little American children are being driven to suicide by school bullies; another deviant priest was charged with molesting choirboys in Brazil; Germany banned naked short selling (as other countries including the US did earlier); the oil slick grows and nobody knows how to stop the bleeding; the financial reforms are both loopholed and harmful to Wall Street; bike racers are doped.
Gloomy news led U.S. Index futures to fall. Commodities are down except for gold. We face more nastiness, Mr. Market seems to be saying.
In fact the world is entering a double-dip collapse because Round I was not enough to “teach us a lesson” about how bad things can be. This according to Jewish puritan Seth Klaiman in Saturday’s Wall Street Journal. We need a repeat of the 1930s. Let’s try a balanced budget and pro-cyclical policies. Let’s get rid of the FDIC. Let’s investigate Goldman Sachs for misleading its customers (Oh never mind. We are doing that already.) Let’s unleash a congressional committee to investigate Wall Street. (Forget it. We are doing that already, but not with Pecora heading it.) Let’s try “beggar-my-neighbor”. Let’s burn Keynes’ books. Let’s fire Keynesians.
My technical analyst friend Tom McClellan likes to joke that fundamentalist traders are useful because he can sell his positions to the fundis when his charts tell him to exit them. And frankly the last two weeks have not been gratifying for those (like me) trying to invest logically based on fundamentals like: economic outlook, corporate profits, currency trends, risk, reality.And the fact that some governments have learned how to avoid the 1930s repeating.
We had a modest boost in markets Friday but nowhere enough to put the bears back into hibernation. The boost came from a very slight increase in the investment community’s excessively low appetite for risk. This unethusiastic move led to marginally higher prices for stocks and commodities, and slightly lower ones for treasuries and the Greenback. But nothing is telling is that the correction is over. The bears are still running around the woods scaring the kids away.
I think this May correction has been the result of insane blind total panic in the wake of the still unexplained flash crash. There was no other reason for it, unless you listen to Tom and his correlations between the VIX and the price of 3-mo Treasuries 2 years earlier. No, this is not a chart I would use when making investment decisions, but frankly there is no other explanation I can poffer either.
Logically nothing explains the selloff, nada, nichevo, nichts, rien. To talk about a second round of global economic crisis is ridiculous. A miniscule number of Club Med countries are being forced to adopt austerity policies. But to imagine for a moment that tiny periferal Greece will kill Euro zone growth would be to forget that its economic movers and shakers are Germany, France, Belgium, and The Netherlands.
Britain is betwixt and between, a coalition government flirting with some symbolic deficit cutting measures, but not likely to undertake sharp cuts (because that will bring Labour back with a bang.) Today the govt outlined GBP 6.25 bn in spending cuts. They will cut civil service recruitment and require govt. officials to travel tourist rather than first class. They will renegotiate contracts with the private sectior and cut spending on IT and ads. Children’s savings accounts will be taxed. Britain will cut employment training expenditures (because they do not work in motivating the work-shy) and reduce the number of consultants across the board. Sounds ok to me.
After measures like these, I count Britain in the expansionary group too. These northern countries account for 80% of Europe’s gross national product. So they will go on growing whatever happens to Greece, or even the PIIGS. Europe’s locomotive economies are pulling out of recession.
To imagine that Greece is going to pull down Britain, the Benelux, Germany, and France is simply ridiculous. Meanwhile recovery is happening in most of the world. The US, Canada, Australia, China, the rest of Asia are not dependent on stimulus or grwoth even in the topmost-tier Euroland countries. The IMF, once a font of gloomy statistics, predicts world growth in 2010 will be 4.2%. US GNP is rising at 4.4% annualized this spring.
Outside the headlines, economic contagion is about as likely as swine flu contagion. Fundamentals are just not being considered today.
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