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Goldata Financial
Investing with the accent on rísk
STOCK MARKET COMMENTARY
February 16,
2010
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, Mr. Market continued to shine his
spotlight on credit --- in two flavors, one being the continued tightening of
credit worldwide and more significantly, the growing concern that credit
already extended may not be paid back to the lender. Fed chair Bernanke
continued to grease the skids here for a future planned withdrawal of
liquidity (i.e. tighter credit) with the release of his testimony (live
session was snowed out) on Wednesday and China re-upped its tightening plans
on Friday for an increase in reserve requirements for its banks (taking
potential demand out of their economy.) Greece told the European Union (EU)
“don’t worry, be happy”, but it was only until
Thursday’s ambiguous announcement of financial support that the credit
(and equity) markets steadied. Even Dubai came back onto the radar screen as
credit spreads there widened (concern that they can pay their debts) until
the EU’s announcement hit the tape. What are we to make of these
events? The Fed’s and China’s tightening have been telegraphed
and are already baked into our markets. The resolution of Greece’s
problem is a microcosm of many sovereign governments today (including our
own) – too many commitments for spending with too little appetite for
the pain required to rein spending in. It appears that the EU (really the
Germans) are being asked to believe that the Greeks (who are balking at
raising the retirement age from 61 to 63) will unwind some social spending
programs in exchange for some sort of financial help --- the details of which
were conveniently missing. Is it a debt guarantee? An outright purchase of
new debt? It smells like an attempt to kick the can down the road and get
Greece past some major debt issuance required this spring. And if the EU
decides to support Greece, can Portugal, Italy, Ireland and Spain
(California, Illinois, New York) be far behind? Talk
about moral hazard! From here, it’s hard to believe that all
won’t be bailed out, with limited pain for the sinners. Most likely,
the EU will probably play “good cop” and call in the
International Money Fund (IMF), the “bad cop”, to deliver the
majority of funds and pain (an austerity plan). For our states in financial
trouble, it appears that we, the taxpayers, are the answer again. Net
net—lotsa theatre, but limited change to our markets.
Washington’s instinct for survival now may be working in our favor as
President Obama continued to talk about looking for middle ground (as the
ground to the left did not fly) to solve problems. Unfortunately, Republicans
sense that any help they provide will only hurt their chances come November,
so more gridlock should ensue (typically good for markets.) Game plan:
Volatility should continue with the long-sought after 10+% correction
now odds-on. Bullishness is subsiding (that’s good) and I do not foresee
more than a scary drop marking the bottom of the correction. At that time, I
will stop selling the rallies and let’em run.
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