StreetSmartPost

Saturday, February 13, 2010. 10:15 am.

It seemed for awhile early this week that the feared collapse of Greece due to its huge debt and deficit problems was going to receive a quick and easy fix. The 16 Eurozone countries were meeting and would simply come to the rescue with a bailout plan.

However, their first response did little to bolster that hope, when they issued a statement mid-week saying they will take “determined and coordinated action if needed” to assist member nations, but provided no details, and did not specifically name Greece.

The situation has gone from hazy to worse.

In a televised address before his cabinet yesterday, George Papandreou, prime minister of Greece, lashed out at his country’s EU partner nations, saying they are sending out a mixed message about Greece, with their debates and foot-dragging, creating a “psychology of looming collapse that could be self-fulfilling.”

Reports are that he infuriated those he looks to for a bailout, at a time when there was already considerable dissension among the other EU nations as to what should be done about Greece’s situation.

In the background is that Greece’s previous administrations allegedly falsified statistics to hide the country’s actual financial condition.

Debates circle around why member nations that obey the rules of limiting deficits to 3% of economic output should bail out countries who don’t follow the rules.

Greece by itself, with a budget shortfall of only $75 billion, is not thought to be a costly problem to solve.

But concerns include that to do so would only encourage others to also ignore the rules on which the union was formed, and would make it difficult to refuse them the same help. Lurking in the shadows are rumors of potential similar debt problems in Iceland, Portugal, and Spain.

Why Congress won’t be able to rein in Wall Street!

Once again after a financial collapse in which the shenanigans of the financial industry played a huge role in creating a bubble (real estate this time) and record risk levels in the financial sector, Congress has investigated and assures the nation it will reform Wall Street and banks to protect investors, consumers, and the economy from such things ever happening again.

It will not happen to any meaningful degree – for two reasons.

The workings of the financial industry are too complex for outsiders to understand, let alone for politicians juggling numerous other important issues, bills, budgets, and constituent concerns at the same time, and with differing loyalties and goals. Even the full-time staff of regulators have to depend on insider whistle-blowers to identify the problems, and on insider confessions, insider e-mails, etc., for evidence. The financial industry is just too complex, its tentacles entwined throughout global economies and markets.

Therefore, it’s next to impossible for lawmakers to understand the complex issues enough to refute Wall  Street insiders who appear before their committees, or meet with them in private, to lobby against each detail of proposed reform. They merely talk over the heads of the lawmakers’ knowledge to explain how that change would be okay for one area, but would have terrible ramifications in other areas of the financial system. And the lawmakers cave. You’ve seen how often the tactic works.

The second and larger reason is money.

During the 2008 elections Wall Street provided candidates with $155 million in campaign funds, roughly $88 million to Democrats, and $67 million to Republicans. In the year following the elections Wall Street firms and executives have handed out $42 million to lawmakers, most of it to the members of House and Senate banking committees, and House and Senate leaders. Wall Street is right up their with the largest and best financed lobbying efforts in Washington. This in the mid-year election year when their re-election looms larger than any other consideration. 

And Wall Street’s methods are rarely transparent and in the open.

For example, a number of bailed-out banks, including some of the biggest names, have formed a group called the Coalition for Business Finance Reform. Sure sounds like a group that is on the side of tax-payers and reforms. But its goal is to lobby against regulation of ‘over the counter’ derivatives, the customized contracts that are traded by the large firms off the normal exchanges, that is, without public knowledge or transparency.

Yesterday in the U.S. stock market.

Another volatile day (and week).

Yesterday the bottom dropped out at the open, with the Dow down 161 points in less than an hour. It then began to climb back, with unusual volatility. But it did so in a pattern of higher lows each time it gave up rally attempts, closing down only 45 points for the day.

But it was a mixed close, with the more speculative Nasdaq, Nasdaq 100, and Russell 2000 closing up fractionally.

In the intraday volatility of buying and selling that had the Dow reversing 50 to 80 points several times, volume was higher than it has been, with 1.4 billion shares traded on the NYSE.

Yesterday’s intraday chart:

The Dow closed down 45 points, or 0.4%. The S&P 500 closed down 0.3%. The NYSE Composite closed down 0.3%. The Nasdaq closed up 0.3%. The Russell 2000 closed up 0.9%. The DJ Transportation Avg. closed down 0.1%.

Global markets for the week.

After three straight down weeks, a positive week. Also positive for gold and the U.S. dollar.

If you’d like to see a three-month chart
of any or all of the above indexes click here, and then click on any of the markets in the similar list at the left side of the page it takes you to.

What’s next for the market?

The news from China that it was increasing bank reserve requirements again to slow its economy, came out Friday morning, after Asian markets were closed.

Due to Asian holiday closings next week, many Asian markets will not be able to react for several days to a week. In addition to the U.S. market being closed on Monday for the President’s Day holiday, South Korea markets will be closed on Monday. Hong Kong, Singapore, and Malaysia will be closed Monday and Tuesday. China, Taiwan and Vietnam markets will be closed all week, for Lunar New Year.

By then it may be forgotten as other situations will be leading markets.

In the U.S., next week will be an average week for potential market-moving economic reports, including new housing starts, the minutes of the Fed’s last FOMC meeting, and the Producer Price Index. To see the full schedule of next week’s reports click here, and look at the left side of the page it takes you to.

The market may pay more than normal attention to the reports for clues to the U.S. economy, given the worries of slowing economies in Europe (4th quarter GDP up only 0.1%) and China taking repeated steps to get its economic growth slowed.

That should be enough fodder to create continued up and down volatility.

Stock Market Patterns.

There is no weekly pattern for next week.

But the daily patterns are for the day after the Presidents Day holiday to be a down day (down 4 out of the last 5 years), and for Friday, the day of this month’s options expirations, to be down (down 7 of the last 10 years). The pattern around the holiday began with its frequent pattern of the day before the holiday being down (down 15 of last 18 years).

Interesting Charts of the Morning.

As I’ve been showing you over the last ten days, global markets pulled back, corrected, whatever you want to call it, to the point of being short-term oversold beneath their 21-day moving averages, almost sure to bring a short-term oversold rally back up toward the m.a.

That seemed to be what was happening this week.

The big question is whether the market will be able to break back above the m.a. and resume the rally and bull market, or whether the m.a will now be overhead resistance on rally attempts, with the pullback of previous weeks resuming.

A few representative charts:

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my weekend newspaper column ‘Uncertainty Brings Market Volatility!’ click here!

NOTE: There will be no blog update on Monday, the holiday. I’ll be back Tuesday a.m. after a look at events over the long weekend, Asian markets Monday night, and early morning indicators for Tuesday.

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