Is this dip a real shift in sentiment? Or is it a blip into which a flutter of panic and a selling opportunity conspire to make something larger out of something intrinsically small?
Is this when the big boys sell to the bag holders and book their profits? I don’t think so. Not yet. Not today. Are some of them looking at the dip and thinking about it. Almost certainly. Traders are herd animals. They like to think they aren’t but they are. They watch lines on graphs and keep a wide eye on the bloke they know one desk over or the volatility and sentiment indicators. They feel for the vibe and try to judge when the herd is going to move.
All markets are aggregates of different and often conflicting agendas.
If, on the other hand enough people believe the sentiment has changed and the dip has legs the recovery hasn’t then the mood in and around Germany and the Greece will harden. As long as Greeks and Germans alike believe that the austerity measures will work, will pull Greece back to solvency, then both groups will grin and bear it. But if enough poorer Greeks think they are going to be made to suffer for richer people’s profit and comfort AND its not going to work, then quite rationally they will take to the streets and withhold their co-operation. At the moment they haven’t really decided. They are trying things out to see how they feel. See who is with them.
The Politicians can agree what they like but unless those politicians are willing to order their police to shed their own people’s blood then they will have to capitulate. That is the logic being turned over in the minds of bond buyers. It is why PIMCO does not believe the Greek crisis is over and I agree.
If the Greeks look like they are not going to go meekly to the slaughter ( for economic slaughter it will most assuredly be) then the Germans too will back out. Why commit money to a project which will burn the cash and still fail? I think the best the German politicians will do is to commit to opening the taps but make sure they are able to shut them at a moments notice. Such a compromise will NOT work for the bond market and risks making fear of failure self fulfilling.
The Greeks would accept wage cuts and the loss of perks and benefits. Even to cuts in social spending. I think it is the fact that the IMF and the EU want to withdraw for Greeks part of their sovereignty, their right to collective bargaining, their right to decide for themselves when they retire, that makes ordinary Greeks feel this is less financial necessity and more an ideologically driven political coup. I sympathise with that feeling. I have it too.
Spain and Portugal are still under pressure. If anything it has grown. This is, I believe, part profiteering and part legitimate concern. Spain has real problems. It is sitting on a lot of dynamite. If it starts to sweat as debt servicing costs heat up, then BOOM. Spanish banks have been taking a hammering. This is, in part, I think, because the market know Santander, the market leader has so far been milking cash from it Brazil and developing businesses, to give it cash flow to disguise the true extent of its non-performing loans back home. I think this cannot last for ever.
A brief diversion. I marvel at Citi. Mired so deeply in a bog of money-laundering accusations and cases. Yet it has managed to hold on to Banamex and all the cash that is providing. I make no accusations myself. But it is worth remembering that the largest cash source in the world is drug money. And more is being laundered now than ever before. That is a fact. And any banks that could access that river of cash would be saved. Not that I impute any siuh actions to any banks I have mentioned or even any that I haven’t mentioned.
ANYWAY,
Spain and Portugal debt and debt insurance costs continue to hurt. The ECB is being looked to to step in. If it does I think it will ruin itself. The ECB isn’t the FED because it does not have the US Treasury behind it. So if the ECB tries to act like the FED I think it will end up like the French at Agincourt. All pomp and pride. Ending in blood and shame.
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