By Jon Markman, MarketWatch
SEATTLE (MarketWatch) — U.S. stocks have ripped higher in the past week
on optimism that the government of Greece would be able to impose
austerity budget measures that will shackle its people to three decades
of indentured servitude to French and German banks and not get thrown
out on its ear.
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Stock market merits caution
in late July
Recent gains could be a blip in the downtrend that started in April, writes Jon Markman. Here's his advice.
• Arends: Why you don’t need a ‘black swan’ fund
• Marder: Aggressive speculation is back
• Most important point in market history
• The end of 'QE2' and you (SmartMoney)
• Brimelow: Some gold bugs say storm's passed
• Four stocks you can ride as Japan recovers
FAMILY FINANCES
• How couples’ retirement plans differ
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• Why Altucher won't send his kids to college
in late July
Recent gains could be a blip in the downtrend that started in April, writes Jon Markman. Here's his advice.
• Arends: Why you don’t need a ‘black swan’ fund
• Marder: Aggressive speculation is back
• Most important point in market history
• The end of 'QE2' and you (SmartMoney)
• Brimelow: Some gold bugs say storm's passed
• Four stocks you can ride as Japan recovers
FAMILY FINANCES
• How couples’ retirement plans differ
• Financial mistakes newlyweds make
• Why Altucher won't send his kids to college
At least that’s how the narrative reads if you look at most published
accounts. You have two events that have coincided in time, so it’s
natural to figure there’s a connection.
But is there really? Let me give you the easy answer, and then the sobering answer.
The easy answer is that this was the first step in Greece’s path toward
receiving emergency loans from ex-partners who stuffed its pockets full
of cash and then yelled, “Thief!”
Greece’s entire GDP can fit inside a Washington lobbyist’s briefcase,
but the idea that it might not pay back its debt enablers was anathema.
It sparked visions of a financial crisis a la subprime mortgages in
2008, in which one little domino falls on another domino, and then a
bigger one, and pretty soon Chase can’t pay the 0.3% interest on
Grandma’s money market account in the state of Georgia.
Fair enough. Markets had been beaten like galley slaves in recent weeks
over fears that Greek politicians, facing rage from constituents over
years of corruption and overspending, would wake up one day, decide to
tell the Europeans to stuff it — and just default on their overpriced
loans. Now investors are breathing as easy as Javier Colon, ratcheting
down the fear of a global debt contagion from code blue.
How the end of QE2 shapes up
Marketbeat's Matt Phillips explains how the end of QE2, which is official as of Thursday, will affect the Treasury market in the coming weeks.
Yet there is more to this story, and it has to do with the debt-ceiling
issue that is escalating in Washington — and with the unshakeable
concern that something is desperately wrong with the global economy. Not
just in Greece, but in China, in Germany, in the United States, and
elsewhere.
A measure of the market rally stems from the prayer that if even the
querulous, quixotic, cupidic Greeks would kowtow to their lenders, maybe
the U.S. will too, and all will be well in the realm.
Investors know that the budget cuts that must be made in Greece are
going to be draconian. They worry that that the same misery will be
forced on the United States by creditors if our politicians don’t
ratchet down the schoolyard rhetoric — the president essentially said
Republican leaders were lazier than his kids — and get their act
together on debt reduction.
You see, it has suddenly dawned on people that the $2 trillion-plus that
was borrowed and spent over the past few years in the United States on
fiscal stimulus and quantitative easing — not to mention two fruitless
wars — have yielded little more tangible result than the ill-advised
infrastructure spending projects that were created in Greece.
The original hope was that our country wasn’t in debt. It had only
“invested.” Apologists said that all the money “poured into the economy”
would soon yield fruit in the form of powerful industrial growth and
rising employment. More people at work would pay the taxes that would
eliminate the debt. Cue the flowery music and a spin by Gwyneth Paltrow.
But that’s not how it has worked out. It’s more like both countries took
out big home-equity lines of credit. Instead of building a new master
bath or renovated kitchen — improvements that would enhance the value of
our homes — we blew the money on a speedboat and a trailer that are now
sitting in the garage, rusting.
Analysts at the start of 2011 expected U.S. GDP growth to clock in at
around 4% this year. And yet as manufacturing has stalled amid stubborn
unemployment and a plunge in consumer confidence, economists have had to
ratchet down estimates to 2% or lower.
Two percent, you need to know, is stall speed for an economy as large as
ours. It’s not enough to grow jobs at any kind of reasonable pace to
make up for the ones lost since the last recession.
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Graphic: Tracking Financial Crisis Cases
