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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

May 4, 2010 at 9:30 AM

Real bears feast on artificial bulls: Worries beyond Greece

It’s another rough day on Wall Street, with the Dow down 270 points as of 9:30 Pacific time. The immediate cause being given is worry that the Greek bailout won’t be enough and the sovereign debt crisis could keep spreading, even threatening the Euro itself. But deeper issues have flattened out the market rally since the end of January and raise doubts about sustaining it.

Regular readers here know that the rally was heavily influenced by the massive direct and indirect federal bailout of the financial system, as well as interest rates essentially as low as they can go. This let loose a herd of artificial bulls, especially hot money, large-scale speculative investments made with cheap dollars via cheap credit. It was a sweet deal if you were along for the ride, but it wasn’t a rally based on fundamentals. True, some companies aside from the rescued banks that reported real, strong earnings; others disappointed.

Now comes news that consumers are spending again — but on credit cards, because wages remain stagnant. Meanwhile, unemployment remains stubbornly high. Then there’s oil prices, although temporarily sidelined today, but heading relentlessly toward that double-dip $90-a-barrel danger zone. And can China make a soft landing from its own bubble?

Average investors are left in a pickle. Returns on CDs, etc. are next to nothing. But at least they won’t lose money. The mojo from fixed income seems in doubt. Equities have shown a good run, but now many stocks are overpriced. And there’s no new bubble to cloak underlying economic weakness.

So, sure, Greece is a big problem, especially as it shows the continued risk in the financial system Ponzi scheme. But the market has yet to really earn its rally from the past year, much less have the confidence to move higher. Uncertainty, meet volatility.

Today’s Econ Haiku:

Apple as bully

And people thought Microsoft

Had that app cornered

Comments | More in Stock market

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