Market Talk

Wall Street’s looking great, but until the financial sector’s results illustrate strength in more than just trading revenue, the ultimate strength of the sector, and the consumers and businesses it’s supposed to be serving, remains suspect. Elsewhere, Greece continues to twist in the wind.

So nothing happened on the Greek front today, but the markets didn’t act that way. And while the Grecians are the focus today, next week it’s going to start turning toward earnings.

Time alone heals all wounds they say. But until such time as that slogan can get a politician elected, they’ll continue to throw money at problems.

The social cotract must be upheld.

Let’s get a few things straight: the Germans and the French are going to bail out Greece, with money, which they don’t want to do to begin with, and for which the Greeks have not been asking for for weeks, but only if they really, really need it, as in “there’s a Cyclops (or market speculator) biting my head off over here I need some help” need it. Oh, and the IMF’s going to chip in, too. There, glad we got that straight.

In a space of two days, we went from Germany not even wanting to talk about Greece at this EU summit, to a full-blown bailout package. Is that really what happened? Well, no, not exactly. Let’s look at the five W’s, as reported by the WSJ:

Leaders of the 16-nation euro zone, bridging sharp philosophical divides that tested the decade-old currency bloc, backed a deal under which they and the International Monetary Fund would jointly bail out Greece should the country’s debt troubles intensify.

The agreement won’t immediately trigger a Greek rescue, but it lays the groundwork for both the first intervention by the IMF in a euro-zone country and a major relaxation of the tight restrictions on country-to-country bailouts that have been a feature of the currency union since its birth. The accord suggests Greece’s financial travails are forcing the euro zone further along a path to greater economic coordination that has been resisted by national governments.

So, the first thing that should jump out at you and scream is this: “should the country’s debt troubles intensify.” Intensify? Greece is on the verge of being swallowed whole by its own debt; how much more intense would they like it?

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I thought I’d get through today without writing or talking about Greece, but it just ain’t gonna happen.

Edward Harrison at Credit Writedowns thinks the Greek story will ultimately prove to be a tragedy:

So, you have Greek politicians threatening to go cap in hand to the IMF, involving the Americans and humiliating the EU, if the EU doesn’t bail the Greeks out. Then you have the Greek Prime Minister denying this and telling the other Europeans they must put the loaded gun on the table this week or the debt markets will implode. Meanwhile, the response from the Germans is ‘Nein.’  In fact, Angela Merkel wants to retroactively change the eurozone criteria so that the Greeks can be excluded from the eurozone if they continue to deficit spend. This doesn’t sound like a lovefest of Friede, Freude Eierkuchen to me. More likely, we have the makings of a more severe crisis.

I had to look up that “Friede, Freude Eierkuchen” reference. From a translated Wikipedia page:

Peace, joy, pancakes today is a phrase that describes a superficially intact, seemingly peaceful, carefree facade of a society. It is often used to express that someone does not see problems as obstacles, but that his life continues exactly as before.

Things are moving fast on this front, and while it’s hard to just imagine some disaster where the eurozone splinters and Greece sinks into the sea, it’s not impossible to imagine, and quite a few sober observers are expecting just that.

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- Treasury’s Geithner and rest of Obama administration seem intent on praising financial bailouts for preventing the banking system from collapsing. But the government interventions weren’t ideal and involved some costly tradeoffs that need addressing, Economist’s Free Exchange blog says. “Geithner has put out the fire, but that’s not the end of the job.”

- Now that health-care reform has passed, it’s time for the reform ball to keep rolling and the White House to put an emphasis on reforming Wall Street and the banking sector, Barry Ritholtz notes.

- Stocks sidestep health care reform, showing the stock market may be ambivalent toward health-care reform, after all. “If Obamacare is such a disaster for the economy, where’s the market reaction,” Paul Krugman says.

- China officials foreseeing “a record trade deficit” for March would undercut the US’s argument that the renminbi is undervalued, Yves Smith writes at naked capitalism. “If true, this may bear out the contention that domestic inflation is running at a high level. The effect, of repricing goods upwards in renminbi terms, would have the effect of making prices less competitive globally.”

- “Remember the scene in Goodfellas when Joe Pesci says, ‘One dog goes one way, the other dog goes the other way, and this guy’s sayin’, ‘Whadda want from me?’” Todd Harrison writes at Minyanville. “That’s what’s emerging in Europe; Germany is pointing to an IMF-package to aid Greece and France prefers a broader European solution.”

- There are about five times as many people looking for jobs as there are openings, but that problem won’t last forever, at least according to a new study from Northestern University. Study argues there will be more jobs than people to fill them by 2018, WSJ’s Real Time Economics blog notes.

- Maybe Citi (C) CEO Vikram Pandit deserves some credit. That’s the message Chairman Richard Parsons has for all the cynics out there.

- “Mr. Bernanke needs to face some unpleasant realities,” former IMF chief economist Simon Johnson says. “The cherished independence of the Fed is now called into question – and losing this could end up being a huge consequence of the irresponsible behavior and effective blackmail exercised by megabanks – who still say, implicitly, ‘bail us all out, personally and generously, or the world economy will suffer.’”

- What’s in store now that the House’s historic health care legislation has finally passed? “Today’s vote confirms our hope that we can have both strength and competence in Washington. It is an audacious hope, but we have no choice,” Robert Reich says.

- Cinderellas, buzzer beaters and busted brackets – what a weekend at the Big Dance.

What else do you need to know about? The market loves ObamaCare (right?), but nobody in Europe more and more looks like a bunch of squabbling children (like Lord of the Feta, or some such thing.)

Pre-crisis.

Partisans will try to pin any selloff on last night’s vote on healthcare reform, which depending upon your political leanings is either historical or Pyrrhic. But there are other factors at work, and besides, the bill doesn’t even go into effect until 2014, so there’s still time to make hay.

There are other things of more immediate import going on, like the resolution of the Greek situation. With the EU holding a summit meeting, and with time running out for the Greek to get their funding in place before they have to turn over something like $20 billion in bonds in April and May, this week has all the makings of a Rubicon-type event (I know, that’s a Roman, not Greek, reference, but you know, if the sandal fits…)

The Brussels summit begins on Thursday, so we have three full days to twist in the breeze while this whole drama drags on. This is pressing down on the euro, which is driving up the dollar, which lately has been a heel on equities. So as much as Kudlow will probably be ranting by 11:30 a.m. that the market hates the healthcare plan, it ain’t that. It’s the Greek thing.

And for as much as this story seems to change hourly, the basic outlines have not changed at all: the Greeks fibbed for a decade, ran a dangerously profligate nation, and need a bailout. The prim and proper Germans don’t want to bail them out.

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The downfall for the Trojans, ironically, was what seemed at first like a victory: during one particularly brutish battle, Hector, the best of the Trojans, killed the great Achilles. Least, he thought he did. As it turned out, of course, he’d killed only young Patrolcus, Achilles dear friend who’d gone into battle wearing Achilles’ armor while the great Achilles was off skulking because Agamemnon had stolen one of his war prizes, a certain Trojan named Breisis (these Greek stories are always complicated.)

The idea was to scare the Trojans into thinking Achilles was back in battle; it worked initially, but Patroclus got a little big for his britches, chased the Trojans back to their great walls (which Achilles warned him against doing) and went and got himself killed.

The killing so enraged Achilles that he did go back into battle, and killed Hector, which presaged the end of Ilium and the Trojan empire. The current Greek drama has been almost as drawn out and convoluted as the Trojan War. And while earlier this week it seemed it all might come to an easy conclusion, it’s worth asking if we’re at the point in the story today where Patroclus is dead.

From DJ Newswires: (subscription required)

Greek Prime Minister George Papandreou warned Friday that Greece is one step away from being unable to borrow on international markets, and appealed to the country’s unions for their support.

The problem for the Greeks is that they face the very real prospect that servicing their debt will become so expensive it will overwhelm any belt-tightening. The government is getting squeezed on the one hand by the Germans and French, who are demanding a pound or 30 of flesh, and the unions on the other hand, which are adamantly against submitting to what they perceive as outsiders’ demands for that pound or 30 of flesh.

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Honestly, this is too complicated for me to follow.

Unless you’re in a Greek union, or you own a German bank, you’d be best off just letting the Greek drama play itself out. This thing is changing almost hourly, and you’re liable to end up like a character in one of Aeschylus’ plays trying to keep up. And none of them came to particularly happy ends.

Yesterday, everything was peachy. Resolution seemed at hand. Today, not so much.

A Greek official told Dow Jones today that the country may have to hit up the IMF for “support,” as it appears unlikely their European brethren would offer anything more concrete than the valueless words they’ve been offering these past weeks. So European stocks tumbled, the euro fell, and things looked grim. Again.

Mind you, the Greeks haven’t asked anybody for money.

Then, this morning, this report comes out that some EU members, like Finland and Italy, could back an IMF-led bailout of Greece. That was followed by another report that Germany was backing a joint EU-IMF bailout (a report that also stressed that the Greeks aren’t asking for money.)

Those were followed by yet another report that Germany now thinks if Greece need a bailout, the IMF should handle it (this report also pointed out that the IMF said it hasn’t been asked for money by Greece.)

This was followed by, you guessed it, yet another report. Now Greek PM George Papandreou (we’re getting good at spelling that name) stressed that Greece doesn’t want money from anybody, not the EU, not the IMF, not Bono or any assemblage of famous musicians. “We want to do it ourselves,” he said.

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