Monday, December 12, 2011

Blind Men, Elephants and Europe

You probably remember the ancient Hindu parable about blind men being asked to describe the features of an elephant.

Here's one version, according to Wikipedia:

A Jain version of the story says that six blind men were asked to determine what an elephant looked like by feeling different parts of the elephant's body. The blind man who feels a leg says the elephant is like a pillar; the one who feels the tail says the elephant is like a rope; the one who feels the trunk says the elephant is like a tree branch; the one who feels the ear says the elephant is like a hand fan; the one who feels the belly says the elephant is like a wall; and the one who feels the tusk says the elephant is like a solid pipe.

A king explains to them:

"All of you are right. The reason every one of you is telling it differently is because each one of you touched the different part of the elephant. So, actually the elephant has all the features you mentioned."

The situation in the eurozone can be likened to this parable.

After the conclusion of last Friday's conference, equity investors cheered: An agreement was reached! Stock prices soared.

But bond investors disagreed: Oh, no, the agreement has no teeth - better run from risk, and dive into the highest quality bonds possible! US Treasury yields dropped, and the Treasury yields remain at 60-year lows.

And it's hard to figure out what commodity investors were thinking, especially looking at the price of gold.

If we were truly approaching financial Armageddon , you would think that gold prices should be soaring - but they're not. There could be some technical reasons for gold's ambivalence (rumors said that European banks were selling or lending their gold hoards to raise dollars), but gold prices have declined by -6% in the past three months.

My wife and daughter headed out yesterday to do their part to spur economic growth (no signs of a spending slowdown in the Glen household!) so I had plenty of time to read papers, magazines, and blogs to try to sort this all out.

But to be honest, I feel a little like those blind men: judging where we are now pretty much depends on where you are looking.