As all of you probably have noticed, the U.S. stock market has jumped up this morning on what appear to be a couple of positive stories. Oddly, both stories didn’t strike me as particularly wonderful, but we are all aware of the fact that the stock market needs no true reason to do anything. In this case however, I ask you to consider some simple and quick points.
One story that seemed positive was Caterpillar stock receiving an upgrade with Morgan Stanley raised its rating on the industrial sector to “attractive” from “in-line”. While this was certainly a nice thing to hear if you are an investor in Caterpillar, it immediately struck me odd. I fully admit that I do not follow Caterpillar whatsoever and know literally nothing about their balance sheet. However, I do know that the company relies heavily upon exports and as the dollar strengthens it will become increasingly difficult for Caterpillar to keep their pricing competitive around the globe and maintain profit margins. But this story didn’t honestly bother me very much.
The story I found VERY troubling was the reports that there might be something in the works to bail out Greece. Not that I have any problem bailing out Greece or anyone (unless it were to somehow involve U.S. tax payers, but that would be the final straw for many, many Americans) but it was the below quotation I got from a news story that bugged me:
“Rumors are swirling that (the European Union) is going to cause the Greek debt holders to take a haircut on some of their prices and shore up Greece,” said Jeffrey Saut, Raymond James Financial chief investment strategist in St. Petersburg, Florida.
You may notice there was no mention of Greece getting its fiscal house in order. The bailout will effectively be the poor investors who were foolish enough to lend the country money who will be asked to take the hickey and eat their losses.
The reason I titled this post “Our New Perverse and Inconsistent World” is simply because it is starting to appear as if the whole world is off its rocker at this point. Consider the events of the past 24 months and notice how there is no disernable pattern that can be counted on.
–Bear Stearns is bailed out in a deal brokered by the Treasury and Federal Reserve (with the Federal Reserve financing 95% of the purchase price at effectively 0%) and Lehman Brothers is let go.
–General Motors and Chrysler senior creditors are thrown under the bus with even the unions being moved ahead of them in line and suffering staggering losses (and the president of the United States calling them out in a live press conference, referring to them as “greedy speculators”) while AIG creditors, who include the world’s largest financial institutions get 100 cents on the dollar paid by U.S. taxpayers.
–Every politician in Washington D.C. has spoken that the economic disaster was caused by too much debt and that we need reform while at the same time planning to increase the government’s debt by double over a ten year period.
–And now Greece, Spain, Portugal and whomever else you’d like to name…who have managed their finances badly and put their countries at peril will somehow be magically saved if the investors who lent them all money get screwed and are forced to accept losses. How lovely.
So I’ll leave it there. I can only wonder when someone…homeowners, corporations, municipalities, sovereign governments or anyone is going to FINALLY have to live with the consequences of their actions. Or will there always be a bailout for them with the people who enabled them stuck holding the bag at the end? Stay tuned.