Monday, May 14, 2012

What goes around comes around

Roughly 3 months ago, I gave up trying to provide unique insights into the world of finance and politics because Europe had decided that Greece was SAVED (again!) and markets had lost their grip on reality.

Every day Apple, Priceline and the other highfliers were soaring $20-$30 and adding billions to their market cap.  It was Mar 2000 all over again, but no one cared because it's too much fun making money for nothing.  When a young buck trader asked "Has anyone ever seen a market like this?", I calmly pointed to the 1998-2000 timeframe (when he would have been in 5th grade) and his mouth nearly hit the floor. 

Well, something has changed in the past 2 weeks and it's hard to pinpoint one specific catalyst for the change in sentiment but the change is real.

* Let's start with Greece.  The Germans appear to have to come to the realization that Greece can not remain in the Euro.  The unrest all stems from a central idea that I've held since the beginning of the European crisis.  The people of Europe are too proud to ever agree to the drastic austerity measures placed upon them by another country.  Thus, they will keep voting out anyone who tries to change the way things have been for the past 30 yrs.  This is the case in Greece and to a lesser extent in Germany and France.  I understand their concerns but the alternative is not going to be any better for these countries and I don't believe their politicians are being honest with them on this front.  If Greece can't come to some resolution (which looks highly unlikely), the terms of bailout 2.0 will not be met and Greece could plunge into default quickly.

However, while the entire world is focused on Greece, my eyes are on Spain because their economy is MUCH larger and the impact of Spain's unraveling will be felt far and wide.  Spanish debt insurance soared to record levels this weekend and if Spain becomes the story of the week we'll have some real fireworks.

* China/India - I have some amazing insights into the Indian growth story after my recent trip to the region.  I'll flush those ideas out in a series of posts later this week.  The bigger concern on the minds of everyone seems to be slowing growth in China and India.  China's PBoC cut their reserve ratio for the 3rd time in six months in an effort to spur the economy but I think they are pushing a string.  The problem does not seem to be borrowing costs but rather end demand.  The Indian Rupee has fallen to it's lowest level relative to the dollar in the past decade.  If the great growth stories of the east suddenly get derailed look out for a rough summer.

* One small bright spot is the fact that a weaker global economy usually means a stronger US dollar which means cheaper commodity prices.  Oil has fallen sharply in recent weeks and that may translate to some more reasonable prices at the pump in the short-term.

I'll also review the JP Morgan mess and what it means later this week.  Thanks to all of you that kept checking the blog during my prolonged hiatus :)

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