Well, markets, you’re doing it again. Misconstruing politics and policy. Misreading the “here-and-now” for the future. And, finally, reacting exuberantly and irrationally the most minor bit of political news trickling out of Europe.
As Bloomberg reports, mid-day market reports suggest that the finance community is, as always, responding in the most unnecessarily optimistic way possible to benign political mumblings from German Prime Minister Angela Merkel and French President Nicholas Sarkozy (aka, the E.U.’s resident saviors). As outlined in Stocks Rally, Euro Strengthens on Merkel Pledge,
“The Standard & Poor’s 500 Index surged 2.9 per cent to 1,188.63 at 1:05 p.m. New York time for its biggest advance since August. The Stoxx Europe 600 Index climbed 1.7 per cent to cap a four-day rally of 8.5 per cent, its largest over that stretch of time since November 2008.
The 17-nation euro currency appreciated 2.2 per cent versus the dollar as it strengthened against 11 of 16 major peers. The S&P GSCI gauge of raw materials increased 2.4 per cent. Costs to protect against a European sovereign default decreased.”
And what major geo-political event sparked such an enthusiastic rally? Simply put, “German Chancellor Angela Merkel and French President Nicolas Sarkozy said yesterday they will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit.”
That’s right. The markets have joyfully rebounded today on news that the E.U.’s sugar-mummy-and-Daddy, Merkel and Sarkozy, will soon be belatedly publicly addressing the unavoidable Greek default coming down the economic tracks while Merkel and Sarkozy simultaneously get ready to tackle the inevitable yet necessary recapitalization (reorganization?) of the very financial institutions that have, for the past few years, ignorantly yet consistently bought into the Greek/E.U. miracle story.
Guys, we’ve gone over this before, but let’s try it again: PLEASE stop overreacting to every minor blip on the economic horizon. I know many of you have traded as cogs in a larger algorithmic machine for most of your careers, but could you pull yourselves out of your terminals for a second and take a macro-look at the bigger, policy-driven picture here?
Now, I know many of you finally understand and expect Greece will default. Good, good, that’s progress. Now let’s take a look at what else you SHOULD be reacting to: ignore what they’re saying in Europe. A lot of economic and financial sh1t is about to go down (Ireland – a feel-good story? Ah, no.
Look for the Celtic Tiger to roar about its unfair deal once the Greek financial dust has settled). Spain and Italy have yet to be dealt with (the E.U. won’t – nay, CAN’T – let these 2 default), while Portugal could soon be joining Greek in the ranks of the defaulted.
Consequently, while it’s all well and good that a blip of good – or optimistic, anyway – news emerges once-in-a while, macro/policy-driven trends point toward the fact that we are, regardless of minor blips to the contrary, in the throes of semi-permanent contraction (meaning recession).
So, markets, I plead with you: please stop over-reacting to news out of Europe (or domestic jobs reports that suggest that, yes, seasonal spending means a slight increase in non-permanent hiring in the autumn) or, really, anywhere.
There’s been no significant drive in spending, consumption, or demand. The European Union is not a politically-viable magic salve that can or will solve the world’s banking problems.
And, frankly, recent dollar and Euro numbers aren’t indicative that we’ve found a “final fix,” but instead reflect the fact that there’s only so much gold in the world, and people have to put their money somewhere (in relatively risk-free places, anyway).
In short, stop calling this a market come-back. For a global recession has been – and will continue to be – with us for years. Since 2008 (a year whose summer trading numbers/volatility, in fact, mirror closely the ill-informed manoeuvring we’re seeing in the markets today), we’ve been living in a global recession – and your optimistic trades and plays off news-that-you-should-understand-better are only making things worse.
Then again, it’s not like you’ll listen to me anyway. Go back to your screens and enjoy trading off rainbows, hope, and puppies. But don’t say a few of us didn’t warn you when you trade yourselves out of your holiday bonuses.
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