The Never Ending European Mess

So we are now in the fourth year of the crisis which never ends, and has no fix in sight, yes indeed, your friend and mine, the European debt crisis.

This weekend, the Greeks and the French decided to throw out the existing leaders who supported austerity. To replace them, the world is now looking at leaders who want more "pro growth policies", meaning more spending and less cutting of expenditures.

Greece has run massive deficits for 20 years, which shows any interested observer the idea that you are going to stop anything cold turkey is nonsense. Why would people who have been having a great time spending taxpayers money for years want to stop that behavior?

In France, the leaders answer is to hike tax rates for the top bracket up to 83%. The economy in France is based on government programs as over 50% of the GDP is related to government spending. If you are a private business in France watching and listening to the rhetoric, you might be getting the papers ready to move your headquarters somewhere else. Why stay in France and work for someone else? The next great question is what is going to happen in the United States?
 
Why do I bring that up? When our country has 50 Trillion dollars in unfunded liabilities, the idea that the capital markets are not going to question the logic of the country's ability to pay is nonsense. Currently, those bond yields are artificially low, being funded by purchases of Treasuries by governments all over the world, including the U.S. At some point, that will change, and when it does, you will see a major change in the bond market, currency markets, and stock markets all over the world. It is going to happen, when, I do not know, but it is only a matter of time.
 
Speaking of the stock market, U.S. equity markets have been down 5 days in a row, and we might be headed to a 6th straight day. Every day starts out the same, with futures way down, and then the market comes back in the late day. Still, there are companies whose stocks are doing well, especially if they are operating well and don't have much exposure to Europe. You are seeing corporate acquisitions, like the Bed, Bath, and Beyond purchase of Cost Plus, which bodes well. Facebook will go public next week, and if ever the circus was coming to town, that would apply. Still, anything which gives people a little confidence in the status of our markets is probably a good thing. If you look at the record low bond yields, there is just so much fear because of Europe it makes me sad that there is so much distrust of stocks.  

 
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