Tuesday, June 21, 2011
Are Euroblock Problems Already Reflected In Market Prices?
I mentioned the "The Cyrano Principle" in my blog post yesterday.
Veteran market strategist Laszlo Birinyi discussed The Cyrano Principle in last weekend's New York Times. The idea, as Mr. Birinyi was quoted saying, is:
"If the problem is as obvious as the nose on your face, the chance are the everyone else knows it, too" The markets, he said, are very good at digesting this news and adapting to it. Sooner or later, he says, "unless there is some truly dramatic surprise - and not just something the market is well aware of" - stock will resume what he expects to be a long run higher.
Which brings me to the current buzz about Greece and the euro block.
I don't know which way the Greek parliament will go today - the discussion of austerity measures has brought widespread protests among the Greek populace, who seem to like getting lots of benefits paid for by foreign creditors (no fools, these Greeks) - but I really don't think it is going to make that much different in the markets.
Moreover, I would also bet that the Greeks can continue to thumb their collective noses at the rest of Europe for the very simple reason that a Greek default would hurt the rest of Europe more than it would hurt Greece.
Jeremy Warner had a good column about the situation in last Friday's London Telegraph. Here's Mr. Warner's observation:
Give us the money, the Greeks can say, or we’ll pull the whole house down with us. As Europe’s policy elite is only too painfully aware, the cost of refusing is likely to be infinitely greater than that of coughing up, however politically unpalatable it might seem to the solvent north. Neither the IMF nor the eurozone can afford to let Greece go.
Mr. Warner goes on to write that a Greek default would inevitably lead to defaults by Ireland and Portugal, followed possibly by even Spain. And in the papers today there are several articles discussing the idea that the real problem in euro land awaits in Italy.
In short, I keep looking for events that don't seem to be already widely discounted in current market prices, and so far am coming up short.
Or, put another way, when billions of dollars are flooding in 2-year Treasury notes yielding 0.38%, it is hard to say that the world isn't already well aware of the financial storms raging in Europe right now.