Saturday, June 2, 2012
Poop meet fan part 2
Digging through the ruins of financial news yesterday and today we're starting to see the cracks in the dam. Some little under reported facts that never saw the light of the financial newspapers:
Greek gas company was demanding the national electric company pay moneys owed them or have their gas supply shut off. Sounds familiar if you're a pensioner on fixed income and they just raised the rates and the government cut your monthly pension check.
Spain just had it's credit rating dropped thereby making it yet harder to pay it's debt. Nothing like changing the terms of an agreement in the middle of the game.
Morgan Stanley: Investors have been worried about the bank's exposure to Europe for months, despite the bank's disclosures indicating that its potential losses are limited. Its Morgan Stanley Smith Barney retail brokerage joint venture is not generating the returns that investors had expected. Remember hedge funds and all that are opaque and very difficult to analyze. Plus they were the ones handling the Facebook debacle.
As we all saw yesterday the stock market took a slight dive on the employment news (actually it was worries over Europe). Merkel has about two weeks to poop or get off the pot in terms of doing something to stabilize the situation. One idea floated was to establish a Euro bank and sell bonds. Maybe they should have considered this before they started the game. But heaping more debt on a person who is drowning in it isn't going to help especially when governments were adding more water, shakles and concrete blocks.
It's safe to assume that since the game hasn't changed since the last meltdown that the same things will happen. Only this time there is no leeway. The bulk of the bail outs went to the banks and not the consumer, the driving force of the economy. The Mitt Raw Money/Paul Ryan plan would have us look like Greece in short order because we have firmly established the fact that those upper class "job creators" aren't creating jobs even after multiple tax breaks. The hedges are still hedging and the swaps are still being swapped but little is being produced. Look no farther than commercial construction as an example. With no future demand on the horizon there's no need for new office towers and the roads didn't get much funding. And now we have states with massive debt cutting their budgets and refusing to raise revenue. Nothing like saddling the people who can least afford it with cuts.
The only good news was in residential housing but even there it's questionable as we haven't seen the end point of the foreclosures yet. Banks just like the government seem to be kicking the can down the road but we're running out of road coming up to the dead end here shortly. Oh yes and no bank fails this week. And if you look at the stock market it's back to where it was six months ago just in time to avoid long term capital gains.
From Bondad, someone who makes his living studying this stuff:
A commenter recently noted that there is clearly a negative impact coming from the rest of the world, hitting the US. I completely agree with this sentiment. As I've noted for about the last month in the market analysis section, equity markets around the globe are dropping; safe assets are rallying (US, German and UK bonds, US dollar and Japanese yen), commodities are dropping. This is the exact scenario you would expect in a pre-recession trading environment. While I don't think we're in a recession yet, we are getting dangerously close.
Let me add: Not in a recession yet? That is unless you're the one who's been out of work for 6 months or longer with slim to no job prospects.