Wednesday, October 27, 2010

Wall street Woes

May 25, 2010 11:33 a.m.

The stock market continues to be mired in excessive pessimism and irrational fear over both global events and European debt questions. The supposed fear over North Korean outlaw behaviour seems particularly foolish since North Korea has been a ''bad boy'' in Asia for a very long time. What has changed ? Traders and hedge fund investors as usual are being hyper sensitive and historically out of touch.

With respect to the sovereign debt issue Greece is now well in hand with the full backing of the European union including Germany and France. There is zero possibility of a debt default. Chancellor Merkel has acted decisively on derivatives shenanigans following the sensible lead of Hong Kong and China on these matters some years before. Other states are negotiating with Germany to harmonize rules. Panic by traders and hedge fund investors based on faulty logic about debt and the ability of states to manage their debt portfolios is strongly overdone. Despite the hard times there are signs of improving consumer expectations and sentiment, unemployment is still too high but conditions are slowly improving and the global powerhouse, the U.S. is showing signs of recovery and more rapid growth.
The only negative indicator aside from trader and hedge fund anxiety is the rush to slash spending by governments world wide. This is of course a negative trend that can only make matters worse.It also repeats the blunders of the 1930s.

In the U.S. Larry Summers is correctly calling on congress to pass what he is calling a mini stimulus of some $200 billion directed at increased loans for small business, aid to states to retain teachers instead of laying them off and extending unemployment benefits. These are all sensible well directed measures that should have immediate positive benefit. Hopefully the Congress will pass the measures quickly.

It is a beautiful hot summer day here in Montréal. It is time for a sunnier outlook on the financial markets and the restoration of hope and prosperity for people the world over.

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