Investors seem to be the proverbial deer in the headlights. Just staring into the abyss while death and disaster strikes.
The warning signs are there, hell, they are shouting from every roof top, but investors seem to be fixated.
The team of Merkel and Sarkozy, referred to lately as Merkozy, have done a great PR spin leading the world away from the obvious. Like a magician's sleight of hand, the world remains distracted while they work behind the scenes doing whatever they are doing. Money continues to flow to the banks, and liquidity and capital seem to be good or amazing.
Common sense tells you that after the downgrade of the EFSF earlier this week it would be more difficult and more expensive for the EU to raise money, but no one seems to care. Greece remains in the headlines deadlocked with creditors, who are not willing to take more than a 50% write down, but even at that the funds needed by Greece continue to grow.
Italy and Spain continue to sell bonds, at higher but reasonable yields, selling their unborn grandchildren into years of economic debts. What happens during the next economic cycle when the countries have not repaid the debts from this recession?
Unlike the US bailouts of GM and Ford, AIG and the Banks, the money was required to be repaid in a short period of time; to date most has been repaid. Angela Merkel would sell 50 year bonds if she could
All the time, we forget about Hungary, who is about to default on their debts and they do not seem to care. Ireland isn't doing much better, only surviving because of continued funding from their bailout package. The UK, a firm believer in Austerity at least took the initiative and took a hard line with finances. No matter which course was chosen it was not going to be an easy path. David Cameron has had to make several difficult choices. No one knows if they are right or wrong, only history will tell us. What is right, is that he put his political career and his beliefs on the line and made the decision and is leading the charge. Unfortunately people, citizens, voters have to suffer, they do not realize they also benefited all those years of easy money, not only the rich and the bankers enjoyed the high times, so did the man on the High Street.
What is amazing is that investors, just keep moving into the markets, keep analyzing both fundamental data and technical charts and find buy and sell opportunities. Oh sure, market volatility if the best friend of the day trader, the forex trader, but it is not the best friend of the investor. Funds and pensions just keep getting involved in more and more complicated trades, investments and financial products that no one understands. If banks, bankers, and brokers are worried, the markets today are very worried about earnings reports from the major financial institutions in the US and there have been warning all week, but it seems the markets keep ignoring the signs...Indexes keep rising, currencies keep moving up and gold remains close to record levels. One day that deer is going to blink at those approaching headlamps to realize he is just too late to get out of the way.