Europe

We peruse the Wall Street Journal’s stock-market round-up each day not to find out why stocks may have risen or fallen, but to determine what factors are conventionally thought to have caused such price movements to occur.  This is an important concern for forecasters, since, even if one attempts to get a read on the market using purely technical means, it still helps to understand what is on the diseased brains of the coprolagniacs whose job it is to manipulate shares to the certain benefit each day of Goldman Sachs, J.P. Morgan and other officially sanctioned predators of the securities world. The very difficult task of explaining the stock market’s behavior to readers of the Journal falls most often to columnist Peter McKay, and we don’t envy him his job.  Because he works for one the most important and prestigious financial publications in the world, it simply won’t do for him to say, as we might (and often do), that stocks rose or fell the previous day for no good reason at all – or at least, for no reason remotely related to reality. We think celestial factors play a far bigger role in this than mainstream pundits will ever be permitted to acknowledge, and that a gypsy fortune teller is therefore better equipped than the highest-paid analyst on Wall Street to tell us why the broad averages are likely to go either up or down. So why did shares dive in the final hour of yesterday’s session after screwing the pooch for most of the day?  McKay cited two reasons: fears related to Europe’s credit crisis, and to the tighter rules soon to be imposed on Wall Street. With all due respect to McKay, this simply won’t wash.  As we all know, investors fear nothing so much as the

At last, the European Union has decided to do a USA-style bailout – one with a quintessentially American, trillion dollar price tag and a shining vision of success.  “[The agreement] will ensure that any attempt to weaken the stability of the euro will fail,” said European Commission President Jose Manuel Barroso.  Yeah, but for how long?  We wonder if Mr. Barroso noticed that the euro finished on a downswing yesterday (see chart below), even as the ink on this latest deal was drying. Still, we hate to rain on the EU’s parade, and even if the Mother of All Eurobailouts failed to inspire a show of confidence in the euro, it nonetheless did pump up the world’s stock exchanges with  trillions of dollars’ worth of dubious new valuations. European shares registered their biggest single-day gain in a year-and-a-half, and U.S. stocks were not far behind. This bailout is a far cry from the paltry $60 billion credit line provided to Greece just a couple of weeks ago. We’d noted at the time that trying to do these rescue packages on-the-cheap would only invite doubt and derision. Probably the last thing those humorless stiffs in Brussels want is derision, and so no one should have been surprised to see them throw caution to the wind by ponying up a proper sum for a pan-European rescue. Greece will now be less likely to get kicked, punched and insulted when it heads for the discount window, and Spain, Portugal Italy and Ireland won’t have to worry so much that all of the rescue money will gone by the time Greece is done with it. Soup to Nuts It’s hard to say how long the good feelings will last, though, since we know from America’s experience that even a trillion dollars doesn’t go very

We’ve featured both bullish and bearish headlines here in recent weeks, so it’s time to clarify the outlook lest readers become confused. In brief, we are looking for an approximately 1400-point rally in the Dow Industrials this summer, but we’re prepared to turn bearish if a change in stock market’s technical condition warrants it (see chart below).  So far, we’re giving the bulls the benefit of the doubt based on a purely mechanical reading of the charts. But we also believe that Europe’s financial crisis is starting to spin out of control, much as America’s banking crisis did when Lehman Brothers went under. In Europe there is fear now, and even rioting in Greece, because no bailout measure tried so far has put deep anxieties to rest. Panic seems unavoidable at some point, and it could come in a day, a week, or a month, but probably sooner rather than later. Regarding our bullish call on the stock market, let us say up front that it goes sharply against our instincts and every shred of logic that we possess. Permabears do not come easily to the notion that stocks could rally so powerfully amidst a patently fraudulent economic recovery – a recovery that has touched almost no one we know and which, even at a very low level, cannot conceivably be sustained. Even so, putting our opinions and instincts aside, we’ve learned to simply trust the charts whenever there are doubts. Goldman Resists Tide This we have done, at least for the moment. As the week began, our technical runes told us it might not be a bad time to venture out on the limb with an especially bullish prediction. Thus, the headline “So Bullish on Stocks That We Feel Guilty”.  The commentary went on to explain why we were

Greece’s financial problems took a dramatic turn for the worse yesterday, causing stocks and bonds around the world to plummet on news that Greek bonds had been downgraded to junk by Standard & Poor’s. The rating agency’s decision was particularly unsettling for investors because just last week a $60 billion emergency credit line was extended to Greece by the IMF, Germany and other European nations. But what may have spooked the markets even more was S&P’s downgrade of Portuguese debt to A- from A+.  This suggests not only that euro-contagion is spreading, but also that any large sums of money pledged to ameliorate Greece’s crisis are no longer capable of calming the markets. Unfortunately, perceptions are everything at the moment, and it seems most doubtful that more talk, more promises and yet more loan guarantees will arrest the spread of fear.  Will the uneasiness eventually come to engulf several other nations thought to be on the financial ropes, notably Spain, Italy and Ireland? This seems a foregone conclusion, since there is no remedy possible that would address, let alone fix, their respective financial problems at a fundamental level. Indeed, for the central banks, the fatal paradox is that if any nation were to get truly serious about tackling its debt problems, the result would be an economically fatal debt deflation. Under the circumstances, it’s no wonder that our political leaders have bought into the lie that untold new sums of fiscal borrowing can reverse a debt deflation. In point of fact, untold sums of new borrowing have yet to cause even a blip in the home prices that were the explicit target of Fed stimulus. Weimar Memories No such remedies are likely to be attempted in Europe, since they would be subject to a German veto. To say that the