Weekly Market Commentary June 27, 2011
- As usual, Greece dominated this week’s news culminating in the Greek parliament successfully passing a medium-term budget bill. Right now, markets are incredibly sensitive to headlines and images of a riot-engulfed Athens and implementation is still an enormous question mark as execution of laws, such as general tax collection, has been a huge part of the current problem. It’s also clear there is a major divide within the Greek government and we’ll have to see how long the current leadership can stand.
- More than likely, the upshot of all this, despite the budget pass, is a global “come-to-Theseus” moment and Greece is allowed to calmly and politely default/restructure their debt with enough signaling so that all investors can come to terms with their held risks.
- For a general bit of good news, the International Monetary Fund elects its first non-economist managing director in France’s finance chief, Christine Lagarde. She is well regarded and comes to the job with a good grasp of what ails the current center of the maelstrom, Europe.
- Chinese stocks have lately underperformed due to ongoing concern over monetary policy tightening. Inflation looks to continue to trend higher and the last thing global investors need to worry about is the world’s second-largest economy strangling itself.
- In last week’s Fed presser Chairman Bernanke said, “”We don’t have a precise read on why this slower pace of growth is persisting. Some of these headwinds may be stronger and more persistent than we thought.” Mr. Bernanke is letting us know he himself is a bit confused as to what the data is saying: Jobless claims are elevated, global purchasing manager indices are rolling in underwhelming and U.S. housing continues to bump along the bottom. It does seem there is some good news in capital spending, which would continue to support the revival in American manufacturing, something we feel has to be a linchpin to the permanent recovery of the U.S. economy.
- And speaking of manufacturing, Industrials have been a key sector leader in the broad U.S. equity rally over the last 5 days. Industrials, Consumer Discretionary companies and Financials have all been leaders, with defensive Health Care, Consumer Staples companies and Utilities taking it on the chin. Clearly there was pent-up demand for riskier names after a string of losing weeks.
- Book of the Week: When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein. It’s a good decade-plus old by now, but in honor of “Too Big to Fail” becoming an HBO movie, I always felt this would have made the better docu-drama: Ego, hubris and failed mathematics never get old.
**All information found in Bloomberg.
Jason Morad
Chief Investment Officer
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