Market Commentary

The level of uncertainty is huge.
March 02, 2010

The level of uncertainty is huge.  This is not unusual but is perhaps greatly amplified today given the incredible events of the last 36 months.  This uncertainty is the major reason why I believe the Federal Reserve is holding monetary policy steady.

To state the obvious Greece is potentially explosive as I believe the implosion of this small country (GDP about 75% of Wal-Mart sales) could threaten the viability of the European Union, a diverse group of 27 nations.  Sixteen of these twenty seven culturally and fiscally different countries utilize the same currency…the euro.   I rhetorically ask can one central bank herd sixteen different countries in the same direction given the inconsistent rules and regulations of its members? 

When the euro was launched I wrote the chance of success is/was slim given the diversity of its members where domestic policy/politics will over rule regional concerns under the guise of “No interest like self interest.”  It is evident the Grecian populist resent foreign intervention in its fiscal policy and the German populist resent a bailout of a sovereign state.  What are the odds the unthinkable could occur…a Grecian bailout by the IMF? 

Wow, life is stranger than fiction!

However what will be the impact if Greece does implode?  Will it have the same impact of the subprime crisis?  Rhetorically I think no.  I think the euro could potentially go the way of the Edsel…great theater but no real impact. 

As written yesterday, recent data has consistently surprised on the downside, a trend that continued yesterday as the ISM Manufacturing Index was nominally lower than expected.  Was this shortfall the impact of the weather?

This tier I indicator indicated the manufacturing sector is expanding for the seventh consecutive month.  More importantly the employment sub component rose to the highest level since January 2005.  As widely noted the manufacturing sector added 11,000 jobs in January, the first gain in three years.

What are the odds given a brief weather induced respite the economy will again surprise on the upside?

At this juncture I think the biggest threat to the economy is not sovereign debt but rather Washington.  I will save the political punditry for the talking heads; however I will write a major reason for the President’s cascading approval ratings is the Administration’s intent to utilize deficit spending and increased taxes to fund its populist agenda.  I think the American electorate is fearful of a possible Grecian style debt crisis, more concerned about jobs than any agenda item.

If the President does not change, the electorate will change the President.  Who ever thought three months ago a November 2010 Republican controlled Congress would emerge as the prevailing consensus.

What will happen today?  Little is on the economic calendar thus suggesting market activity will be dictated by corporate and geopolitical headlines.

Last night the foreign markets were up. London was up 0.85%, Paris up 0.73% and Frankfurt up 0.60%.  Japan was up 0.49% and Hang Sang down 0.72%.

The Dow should open nominally higher as the EU said it expects Greece to announce further deficit reduction measures in coming days. The 10-year is off 8/32 to yield 3.64%.