Spare Us the Greek Chorus

02/11/2010 9:21 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

The world's tallest skyscraper, which has sat empty save for its viewing platform since opening a month ago, has had to close that as well this week after the elevator malfunctioned. The multinational force of traders and investors that was to fill the Burj Khalifa's hulk remains "scattered abroad."

Because we live in complicated times, the monster in Dubai is not the only modern-day Tower of Babel. There's also the European Monetary Union, another complex, multilingual, and—some would argue—overly ambitious edifice, now under siege as the credit markets haze wayward member Greece.

Greek budget problems have spotlighted the not-quite-as-dire fiscal straits of Spain, Portugal, Italy, and Ireland. These former fast growers are having to rediscover budget discipline in the aftermath of the global bust. Lumped together by ill-wishers as PIIGS, they're large enough to spook investors in European banks and even those hunkered down in New York. After the Lehman Bothers implosion and subsequent market crash, Wall Street has a thing about credit problems.

The Greek drama combines the two most unfashionable notions (government and debt), places them on the outskirts of creaky Europe, and spices the pot with recent memories of urban unrest. It drives the cynics (of whom there's a glut) to tut-tut about moral hazards and bailouts, in willful ignorance of a financial history that's full of them.

Greece has been in sovereign default roughly half the time since its independence in 1832. Trendy Brazil, praised these days for its fiscal probity, collects bailouts like soccer trophies, having netted its most recent one seven years ago.

And yet the world stubbornly refuses to end. It goes on, intervention after intervention. It keeps on buying China's exports and sending China its wares. It keeps on playing online games and bidding up Baidu.com (Nasdaq: BIDU).

Chile’s stocks trade less than 3% below the record high hit last week. Israel's tech-heavy Tel Aviv 100 index also keeps chugging along, weathering the recent correction so well that it's just grazed its upwardly sloping 50-day moving average. Yet one of its stalwarts continues to yield nearly 10%, notes Carla Pasternak.

Andrew McHattie profiles a UK trust investing in Asian small caps that topped all peers in 2009 and offered cautionary commentary about market prospects at the beginning of this year. And how has it been rewarded for such foresight? While net asset value was slipping 4% over the last month, the share price dropped 10%.

Even Japan, whose problems Carlton Delfeld eloquently describes, is hardly out of bullets. If private domestic investors really have had enough of its mushrooming debt, the central bank could simply buy up all of it (rather than the half it currently purchases) with freshly printed yen. This would drive down the Japanese currency to the benefit of exporters, while ending nagging deflation once and for all. 

Trading won't solve all problems in a world where some prices and currencies are fixed, access to information is far from level, and the relatively small illiquid markets for sovereign debt default swaps can be used to bully the sheep-like flocks of bond investors. Governments have marshaled public resources for the presumed public good as a last resort, and will continue to do so. Students of history ought to expect no less.

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