I’m not surprised, of course. After all, it was Paul Kanjorski’s effective extortion of FASB that literally marked the bottom in the market in 2009. All you have to do is put a gun to someone’s head (and have the power to pull the trigger, as Congress does) and voila – it’s all ok, right?
Well, as we saw, no, it’s not ok. But it is good for 100% rally in the stock market.
This morning we’re going to see big moves in US banks – BAC is up pre-market something like 8% and the others are also up big. Europe is up huge across-the-board and our futures are up about 2% as well.
Why? Because “Greece is Fixed!”
Wait: It’s not.
The “agreement” is that bondholders will take a 50% chainsaw, er, “haircut” on their Greek debt. In yet another stunning “agreement”, this will somehow not trigger credit default swaps – in other words, they’re not really default swaps any more, now they’re “whatever we call thems when we want them to be whatevers.”
This is a huge problem up and down the line; if you bought this “protection” you now got nothing for it, which means this market’s functional purpose is now a zero.
Here’s the hint folks: Watch the spreads.
I don’t think this is going to work. Drinking yourself sober never has, and this will be no different. It obviously has and will, however, provide a short-term lift, exactly as we got one in the US after the first “go-around” with TARP and such.
If spreads do not come in and stay in, however, this will be short-lived. I expect we’ll have some more ups and downs, but the the principle of gravity has not been repealed, and what goes up on the slow boat will come down on the express elevator. It will not be long before the speculators attack Portugal or (more likely) Italy, and it will be quite interesting when they do, as there’s nowhere near enough firepower to repeat this game with them.
For today (and perhaps for a few more days) enjoy the rally. Oh, and while you’re at it pay attention to oil and the bonds – there goes BenDover’s “Twist” effectiveness (incidentally that’s thrice now he’s said he’d “keep” bond yields low, and that’s thrice he’s been wrong. Why do people put up with him again?)