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Greece- - Again-(and again)
As the industrialized world economies seem to be struggling to find some growth and actually employ more people, the attention again turns to Greece. As rumors fly in both directions, the market is being whipsawed by those who want to ride the profit train in whichever direction it may eventually trend. Interestingly enough, Greece is an exaggerated microcosm of problems many countries are facing; how to increase revenue (to handle extraordinarily high levels of debt), and stimulate the economy at the same time.
If you have been living under a rock for about five years you would not think this is much of a problem. Tighten the purse strings a little (not so much to hamper growth) and as the economy grows revenue will increase. Problem solved! Unfortunately, we have been living a lavish lifestyle and counting on growth to last into perpetuity. So, as the economy sinks excessive debt is actually a heavy burden instead of the normal GDP accelerator it always has been.
When the monetary stimulus toolkit used by the Federal Reserve is somewhat empty the United States would normally look for fiscal help from the Government. Well, with the partisanship being displayed by our leaders it does not look like we will receive any meaningful impact there. Fiscal stimulus can come in the form of tax reform, stimulus checks, or a variety of different programs that each has their own distinctive pros and cons. All this being said, it does not appear as if we have a smooth stock market going forward. Whichever path the market eventually takes in the intermediate term volatility will continue because weakness will be fought tooth and nail from the Federal Reserve and our President, while market strength will be vulnerable to economic worries, debt concerns, European problems, etc.
The Dollar Index appears to be rallying. This is placing pressure on the popular precious metals trade. As I write this, Wednesday September 14th the dollar index is trading at approximately 76.93. I believe it will be tough for any asset rally to really take hold if the dollar continues to strengthen. It is conceivable the dollar is sniffing out a possible double dip recession. While this may not surprise many people it is not a foregone conclusion by any stretch of the imagination.
Consumer confidence is not very high and I am really curious to see who actually wins the GOP nomination. The right appears to be as mad as the left was when George Bush was finishing his term. It is my belief that the more furious the political party base, often times the more left or right leaning the eventual nominee is. Obviously, this is true of either political party. Whoever is nominated, and whoever eventually wins I believe partisanship is not going to get better anytime soon. How does that old phrase go? Republicans and Democrats, a pox on both your houses. I think that frustration could sum up many people's feelings right about now.
Will Germany agree to send more money to their southern neighbors? Will China continue to help? Will Greece be able to change their tax culture without more riots or revolts? Will our Government find some common ground? Are the European banks as solid as they claim? Is Greece the proverbial tip of the European iceberg? Time may be the only variable that will answer these questions, (and any other question you may have.)
Written By: Daniel Petrey, CFO, MBA
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