Health & Fitness
Back Where We Started
David Joy recaps the results of Greece's weekend election and its consequences for global markets.
David Joy Chief Market Strategist,
Ameriprise Financial
"Greece is still in the Eurozone, operating under the terms of a strict bailout agreement, and with an economy that is not growing."
Find out what's happening in Larchmont-Mamaroneckwith free, real-time updates from Patch.
Find out what's happening in Larchmont-Mamaroneckwith free, real-time updates from Patch.
"Greece is still in the Eurozone, operating under the terms of a strict bailout agreement, and with an economy that is not growing."
The Greek elections on Sunday leave investors exactly where they were last Friday. Greece is still in the Eurozone, operating under the terms of a strict bailout agreement, and with an economy that is not growing. Neither they nor the global investment community is any better off as a result. Of course, if just an additional two percent of the vote received by the victorious New Democracy party had instead gone to Syriza, which wants to tear up the bailout agreement, we may have been significantly worse off, at least in the short run. But since that didn't happen, we are back to the same old questions. How does Greece pay its bills? Will the EU ease the terms of the bailout? Will the European Central Bank take a more aggressive role? Will Greece leave the Eurozone anyway? Will the Eurozone itself unravel ultimately? None of these questions was answered by the election. And we will now once again witness the spectacle of attempts to form a coalition government. So, we are back where we started.
Stock markets around the globe seem to be responding to this latest bout of uncertainty relatively well, except in Spain and Italy, where markets are lower by almost 3.0 percent at midday on Monday. Their sovereign bond yields have risen sharply as well. Elsewhere, markets are experiencing only modest movements. This follows last week, in which every major geographic region globally saw solid gains. Some of that strength may have been derived from anticipation of a "pro-bailout" election result in Greece. But some of it likely came from expectations that the Federal Reserve will announce some form of additional stimulus when its meeting concludes on Wednesday. Or perhaps there are hopes that the next EU summit or meeting of the G-20 will result in some bold announcement that will buy more time or offer some kind of breakthrough.
This all seems like wishful thinking. Europe has so far been unable to take bold action, and given the political realities of the Eurozone's seventeen sovereign members, it is unlikely to do so now. The non-European G-20 members are unlikely to offer much when many are experiencing their own fiscal challenges.
The Fed may be the wildcard, at least for U.S. markets. The latest evidence shows the U.S. economy slowing down. Manufacturing, retail sales, and job growth have all decelerated. Weakness in Europe is being joined by weakness in China that is spreading throughout Asia and Latin America, making matters worse. All of this provides justification for the Fed to do something, should it choose to. But what? And how effective would it be anyway? At the same time, the U.S. appears to be growing at a rate of about 2.0 percent plus or minus. Is that pace of sufficient concern to cause the Fed to act? Maybe not. Maybe they will simply offer words of support, reiterating their vigilance and readiness to do something if necessary. If that is all they offer on Wednesday, markets may be sorely disappointed.
Lastly, in thinking about the future of the Eurozone, the focus inevitably turns to Germany. It is Europe's largest economy and its healthiest. It is often perceived as having the financial resources to ensure the survival of the Eurozone, but it is reluctant to use them. However, upon closer examination, they have done quite a lot. On Saturday The Wall Street Journal published a chart prepared by Credit Suisse that tallied the amount of financial commitments already made by Germany toward Eurozone bailouts. The total to date is €671 billion, or the equivalent of almost $850 billion. This represents approximately 24 percent of their annual GDP of roughly $3.6 trillion. Now, perhaps not all of these commitments will require actual disbursements. But how willing do you think U.S. taxpayers would be to make equivalent commitments, given the size of the U.S. economy, of almost $3 trillion? Not very. So, Germany has indeed put its money where its mouth is. But it cannot do so indefinitely without weakening itself. And it will not do so indiscriminately without further fiscal reform. And that will take time and political determination. The latter might be there, but the bond markets of Spain and Italy are saying that time is a commodity in precious short supply.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
© 2012 Ameriprise Financial, Inc. All rights reserved.
