Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that this new “Grecian Formula” is creating the opposite effect to the men’s hair product, i.e.., rather than losing the gray we are all getting grayer from the stress of it all—especially the banks holding all that Greek debt. The new Greek elections are set for June 17, which will tell us much about how this all resolves.
On Wednesday, Germany sold about $5.8 billion worth of 2-year zero coupon bonds with an effective yield of virtually zero. In other words, investors are buying them simply to preserve capital, i.e., a return of their principal rather than trying to seek any kind of return on their principal (and risk losing it). While Spain and Italy have to pay increasingly higher yields on their bonds, Germany’s stability allows them to receive free money from the investment community. And Greece, you might ask? Its 1-year bond is yielding over 1,100%.
As the euro continues to fall against the U.S. dollar, U.S. equities suffer, even though recent U.S. economic data continues to improve. Even housing is getting in on the upswing. And of course, although the latest stimulus program, Operation Twist, is set to end in June, the Fed has promised to stand ready to provide all liquidity required to keep the U.S. economy functioning. Nothing beats free money. But still, investor worry about global economic dominoes falling prevails.
Let me make a brief comment on the latest Wall Street boondoggle—also known as Facebook (FB). Of course, we all know that it is a terrific destination with a huge and rapidly growing following of loyal users. Surely there will be a way to continue growing revenues without chasing away their legions of fans. But the fact…
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