Sorry, I’m lazy again. I hope you don’t feel slighted by the potpourri version.

Europe

I had a conversation yesterday with someone about doom and gloom in Europe. I tried to play devil’s advocate and come up with a scenario that would be most stabilizing for markets in the short term. If you’ll recall, there were rumors that the IMF would be able to boost the Greek bailout by €10 billion. Given the market reaction, this was not going to be sufficient. The best that could happen was for a €80 billion rescue package (out of the €150 billion needed by Greece) to be announced along with some sort of guarantee program for Portugal. The truth is that the market had already considered Greece a failure and was looking forward to the next problem. The fact that the only good trades yesterday were long Dollar, Yen, and Gold, there was an obvious flight to safety. I took that as an indicator that a small package would not be sufficient to calm the markets.

We didn’t get much hope for Portuguese stability, but the Greek package grew to a potential €120 billion. This should be enough to get Greece through the next two years, at which point it will implode unless another round of bailouts occurs. Just kidding, they’ll implode even with another bailout. Still, this is about as good as we could have hoped for short-term stability.

The confidence gains made by the announcement of the larger bailout package were countered a bit by the S&P downgrade of Spain. AA isn’t a terrible rating, but the ratings agencies don’t exactly have a reputation for being early with their downgrades.

Italy came close to failing a bond auction yesterday, and they have between €5 and €8 billion in debt to issue in the near future. I think things are fragile enough that a failed bond auction in Europe would be extremely negative right now. One way to determine if market confidence is restored is to look at the bid-to-cover ratio on upcoming auctions. Plentiful buyers are probably more important than low rates at this point.

At this point, I think we’re in Wile E. Coyote mode. Nobody look down or all of Europe falls apart. I continue to anticipate a rather slow train wreck, unless a big eurobank tanks in the unwind process.

US

The Fed helped calm markets on this side of the Atlantic by promising free money forever. Everyone likes free money, especially when the alternative is instability in the financial sector. Of course it’s only “free” in the sense that the costs and risks are largely hidden, transferred to everyone else. Nothing (except reality) can stop this ponzi market.

At the end of the market day, HP announced intent to buy Palm for $1.2 billion. This is currently being interpreted as a positive move for HP. Given the many problems at Palm, and the catastrophe that was the HP-Compaq merger, I am less optimistic. The fact that the company is healthy enough to engage in such a deal is positive, regardless of how intelligent the deal might actually be.

Australia

I don’t pay enough attention to Australia. Today (Tomorrow? Silly timezones/spherical planet), the Australian market is down. This is being interpreted as due to a drop in raw materials prices. I find this a bit interesting. China may have another 4 trillion yuan stimulus package in the near future (though some doubt this). If such a stimulus package gets passed, this is very good for Australia. I don’t doubt that the Chinese bubble will pop at some point, but that point could be a few years in the future. When it does pop, the drop-off in demand will be hard on Australia. Again, I hope that they are investing wisely for when the turn comes.

Though I hold some optimism, there is the possibility that their housing market is near another inflection point. Rate hikes could have that effect.