Stocks Are Rallying on Low Expectations

10/14/2011 6:30 am EST


Jim Jubak

Founder and Editor,

Although the Greece debt saga goes on, the lack of any real bad news is taken as positive by stock investors…and this trend can continue, says MoneyShow’s Jim Jubak.

A lot of what’s going on in the stock market in October is about low expectations. If you just look at the way that the Euro debt crisis has been set up, especially the Greek debt crisis, you can understand how low expectations were, and how little it takes to give us good news.

Ok, so the first week of October, the last week of September, we’re sitting around wringing our hands, going "Woe is me, woe is me, the Greeks are going to run out of money." And the Greek government said on October 10, we run out of money, we don’t have the ability to pay government salaries anymore, and we can’t pay pensions and that’s it, the coffers are dry.

No one was talking about default on bonds, but they were talking about basically not having enough money to keep the doors open. Well you know there is always some money, stuck under somebody’s couch cushion, so now it looks like well, the Greeks are saying, maybe we’ve got enough money to get to the end of October, but that’s going to be absolutely it.

My guess is that the Greeks will indeed be able to get to the end of October and then maybe a few days into November, but that’s the low expectation that we’ve avoided a default but things are moving in that direction.

Against that, you’d have to take the slow, slow movement of the Troika. If this was really a Troika, these horses would be ready for the glue factory, but the Troika is the International Monetary Fund, the European Central Bank, and the European Union—these are the people who are supposed to be coming together, looking at Greek finances, and saying the Greeks deserve it, they’ve done what they need to do, and they’ll get the next payment of $11 billion or so.

Now it looks like they went back to Athens, they did their homework, and now it looks like they’re not going to even report until October 27.

Really, if you go "Yeah, things seem to be sliding," but Greece hasn’t defaulted on October 6, it hasn’t defaulted on October 7, hey we get to October 10 and Greece is still standing. We get to October 15, people start to go "Oh, it may actually make it to October 27," or whatever, the European Union’s very slow process will work.

Given that the bar is set at "Greece is about to run out of money," every day that goes by and we get a little closer to getting some action feels like a reprieve, feels like relief, and all of that keeps the stock market on the good side of the ledger, as opposed to the fearful side.

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