Tuesday, April 27, 2010

Living by the camper/bear rule

The stock markets worldwide took a 2% drop today on news that Standard & Poors became the first bond rating agency to downgrade Greece’s debt to junk status. They are suggesting that investors could expect to get back only 30 cents on the dollar they invested. They also down graded Portugal’s bonds and there are rumors that Spain is next despite the fact that the two are in good shape by comparison.

The supposition is that Greece will take down several large European banks if they default. Germany is waffling on any sort of bailout for political reasons and this is supposedly spooking the bond rating agencies. Greece is crying foul on their downgrade as no decisions have been announced. You should realize that these are the same rating agencies that told European investors that the Collateralized Debt Obligations (CDO’s) Wall Street was selling were AAA rated like US Treasuries when they knew full well they were nearly worthless.

Junk bond status puts huge pressure not only on Greece to accept onerous terms from the IMF reducing Greece to corporate serfdom but is driving all the world markets. The US dollar is up sharply against the Euro and there are people on Wall Street making money from this.

Back in the US there was brisk business in US Treasuries driving down interest rates as investors apply the camper/bear rule. The camper doesn’t need to out run the bear, just the other campers. Foreign investors are betting on the US as the fastest camper but that by no means should be taken as a hopeful outlook on the US’s chances. There are a lot of bears in the woods.

The Republicans voted again today to block debate on the financial reform. They refuse to allow public debate where they could present amendments but insist loudly that the Democrats are somehow playing dirty by not making a deal behind closed doors. This is of course the opposite of what they are constantly saying about how legislation should be done. The flip flop isn’t just a delaying tactic, they know a bill is inevitable and they want to claim in November that they wrote it. Public debate and amendments would make that claim impossible and would reveal every attempt they made to weaken it. They will follow their long tradition of claiming that they were looking out for the voter as they really were doing Wall Street’s bidding. Don’t look back, the bear is gaining.