We still see the glass as half full, given likely decent global economic growth, healthy corporate p...
Abandoning Capt. Merkel's Ship
06/08/2012 11:21 am EST
We've reached the dangerous point where faith in deliverance from on high exceeds the will, wits, and capabilities of global leaders, writes MoneyShow.com senior editor Igor Greenwald.
I would like to cop a plea: in an all-too-recent past, I've been guilty of unwarranted optimism.
Even a month ago, right after Socialist Francois Hollande was elected president of France and Greeks rejected the "mainstream" parties collaborating on Europe's rotten deal, I thought the popular revolt against austerity might sway Germany from its disastrous course in time.
But now I fear that the time has run out, and that Chancellor Angela Merkel will only be swayed by the full weight of the awful consequences of German blindness.
The cover of the new Economist features a supertanker, helpfully labeled The World Economy, sinking to the bottom of the ocean. The caption reads, "Please can we start the engines now, Mrs. Merkel?" That's an apt analogy for where things stand, as evidenced most recently by the accelerating decline of German exports, Italian industrial production, and share prices in emerging markets.
The chart of the iShares MSCI Emerging Markets ETF (EEM) looks like a no-brainer short, the more so after this week's bounce.
US stocks staged an impressive relief rally Wednesday off their 200-day support, but-with the action in bonds, commodities, and currencies in mind-look for all the world like the last clueless kid in the back who doesn't realize the party has been busted.
The thing about supertankers is that they're not submarines, and even if you could turn on the engines in mid-dive, that would hardly avert disaster.
The notion that it still matters what Merkel does, short of her rejecting everything she's stood for previously, betrays unjustified faith in the ability and willingness of global leaders to arrest an interlinked decline. Emerging markets have much less scope for stimulus than was the case in 2008-2009, the US Fed and Japan's central bank are down to blanks for bullets, and Europe remains unworkable in its current format.
So even if European leaders manage to agree this weekend on a plan to recapitalize Spanish banks, JP Morgan's call for "an extended soft patch as weak as anything experienced in the past two decades outside the Great Recession" looks like the best-case scenario.
The sand grinding in the gears of the global finance and trade machine is liable to cause a cascade of malfunctions, and when it does, the US stock market will prove no safe haven.
I plan to get more enthusiastic once the S&P drops below 1,200 and no one's counting on central banks to make much of a difference. It's an outcome that seems much likelier than a return to springtime highs any time soon.
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