INSIGHTS

On November 04, 2011

The Markets & World’s Economy: Three Major Events

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In the last 24 hours, there have been three key developments that should catch investor’s attention. The Greek Referendum vote has been canceled in light of the ultimatum that Germany and France has put forth to Prime Minister George Papandreou. It appeared to us, as we wrote yesterday, that this referendum vote was initiated by political pressures to maintain his position of power which he ultimately denied. This little turn of events is just one of the many on the road that lies ahead. Once the journey to austerity takes us out of Greece, it will likely head on over to Italy and Spain. The markets seemed at peace during trading until today’s announcement that the IMF need for more monetary resources has not been agreed upon by the G20 meeting in Cannes, France. The continued lack of coordination of an all in solution would be funny if it were a Three Stooges skit; however, in reality, it is far more draining and increases cynicism. A lesson not learned yet is when you attempt to do just enough to get by, confidence is never gained.


Another positive development yesterday was the European Central Banks (ECB) decision to cut interest rates 25 basis points. In just his first few days in his new role as President of the European Central Bank, Mario Draghi brought a gift in the form of an interest rate cut as he is concerned about a mild recession beginning in the Eurozone. We criticized the ECB in their initial interest rate hike in April as fear of runaway inflation spooked former president Jean-Claude Trichet. It appeared to us then and now as a sacrificing of the many for the few. New president Draghi also came out guns a blazing in criticizing Eurozone leaders for even pushing the possibility of having Greece remove itself from the European Union. From a central bank standpoint, things are looking a bit more interesting over there.


Lastly, the jobs report came and with the usual anticipation. It is not necessarily the release of the new number, but rather, the revision of the previous number. The new numbers came in lower than expected across the board except for the drop in the unemployment rate to 9.00% from 9.10%. However, the previous numbers saw an increase in non-farm payrolls of +55,000 and an increase in private payrolls of 54,000. We may soon get to the point where new releases are completely discarded for more accurate revised numbers. The one area that I find more interesting considering the bombardment of negative growth headlines is that the average weekly hours for all employees is holding steady at 34.3 hours which is also the 5-year average. One might have expected a more significant drop in this metric should the anemic growth headlines were to be believed.


All in all, it is just another typical day in the markets….ho hum. All sarcasm aside, there will be plenty more of these unexpected twists as we proceed and the investor should be cognizant that when you turn the crank, the jack in the box will eventually pop out. Even though you are fully expecting it, it still causes a stir. The risk of emotional whipsaw from Europe is high and the anxiety of another melt down still causes domestic expectations to be unfairly tempered.

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