Just when I thought the market was headed back to a bit of normalcy …
I know, I know, when is the market ever normal? In fact, if I, or anyone for that matter, ever thinks the market is behaving, well, ”normal,” I would ask that the term be explained, relative to the market. I can’t do it, so why would I think such a thing?
The simple answer is I want the market to stop going crazy with wild swings from here to there and back again. That makes me crazy.
So, today’s market is swinging wildly, again, and this time it appears the boogey man is the new populist leader of Greece, Alexis Tsipras. He has pledged to roll back the austerity and remove the “humiliation” Greece has suffered. He has also stated Greece could leave the Eurozone and all will be well.
The funny thing about electing of populists is that the original message gets lost when the reality of governing actually takes hold. Here is Greece’s problem in a nutshell.
- Of course, they are still on the hook for its €240 billion bailout deal. But Greek leftist leader Alexis Tsipras campaigned on the idea of renegotiating this big debt.
And today’s market reaction to the news is irrational and, well, not abnormal.
- This is an example of the irrationality of financial markets. Why should markets gap down on the ending of austerity? I know that runs contrary to popular opinion, but this could be another case of the Extraordinary Popular Delusions and the Madness of Crowds.
The “ending of austerity”? I would not go that far, but I would suggest that the ghost of John Maynard Keynes is lurking about the Greek election and Mario Draghi understands this, which is why Europe has a brand new QE program, despite Germany’s insistence on austerity as the way out of the financial mess in Europe.
In fact, Keynes would argue that stimulus is the only way out, and lots of it to boot. Another in fact is that he advised FDR at one point on the way out of the Great Depression.
- Once upon a time we had a president who proved you can have massive stimulus and see the world for the way it really was. His name was Franklin Delano Roosevelt. European leaders would do well to channel their inner FDRs right now. If they don’t what is the alternative? Greece can leave the EU and the Euro can go to 95, right?
We also have another President who understood the same thing – stimulus was the way out of the Great Recession. It too worked. In any case, Greece leaving the EU and the Eurozone is yet to be seen. That reality will come up against the reality of Greece’s current debt and Greece’s economic future. Greece would do well to remember that this is the 21st century, not the 5th century B.C. times have changed and Greece needs Europe and the euro to survive.
- The new Greek government will seek to renegotiate. Why shouldn’t they do it?
Yes, renegotiate, rather than leave. A better question is: Why wouldn’t it, if it wants to come out of its debt debacle alive? The market will soon adapt to this reality, and then it will be … never mind.
Trade in the day; invest in your life …
