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David Callaway
May 6, 2010, 12:01 a.m. EDT · Recommend (8) · Post:
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Fed can't delay market storm
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April sales lack March's sizzle
By David Callaway, MarketWatch
SAN FRANCISCO (MarketWatch) -- History is written by the winners. It's also written by the survivors.
In that context, it was sad to see former Bear Stearns chiefs James "Jimmy" Cayne and Alan Schwarz on Capitol Hill Wednesday still screaming into the wind two years later that their investment bank was taken out by "unjustified and irrational" market forces.
Sad because nobody was listening; sadder because they were right; saddest because it is happening again. See story on Cayne testimony.
That Bear Stearns was way too leveraged on toxic subprime loans and that Cayne and Schwarz hastened its demise in March 2008 by ignoring the so-called "market forces" lined up to take them down is without question. But even these long-time Wall Street power brokers were not prepared for the swift and brutal attack by short sellers, rumor-mongers and long-time competitors once their blood was smelled in the water.
As contagion fears sink the euro, risk aversion hurts commodity and emerging market currencies, and the yen is sidelined by deficit worries, the dollar's upward momentum will grow as data suggests a U.S. rate hike before year end, Dow Jones's Nick Hastings reports.
That their firm was saved from collapse by a fire sale to J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 40.20, -2.43, -5.70%) was lucky for Wall Street and investors, if not for the Bear Stearns executives and employees. Six months later, Lehman Brothers would not be so lucky, as the political uproar over the Bear Stearns rescue would cause the government to allow Lehman to collapse, sparking the worst part of the financial crisis.
European politicians and central bankers stand in Cayne and Schwarz's shoes this week. They are unsure what to do in the face of swift and brutal attacks from all sides on their generation-long dream to build a single currency and single market out of the rubble of a war-torn century. From Greece to Portugal to Spain, to the European Central Bank in Frankfurt itself, they cannot understand that the forces lined up against them will keep pushing until either the euro comes down or a massive and unpopular bailout is levied to prevent an international cross-default.
Already people have died at the hands of social unrest, something narrowly averted in the U.S. two years ago when the government prevented a run on the money-market industry after Lehman collapsed. More protests can be expected during the hot European summer, for the euro was never popular on the streets of Madrid or Lisbon, or Athens, or Paris or Frankfurt for that matter.
Wall Street bankers will be replaced by elitist European politicians and economists, however, as scapegoats for pushing the region into a single currency that prevented economically weak countries from manipulating their currencies to keep their economies going. After Greece, Portugal, Ireland and Spain, sits Italy -- which could fling the final flaming torch into the house of euro.
A cover story in Business Week magazine, perhaps 15 years ago before the euro was adopted, envisioned how it would collapse. As Greece was not seen as an eventual member then, the story imagined the crisis would start in Italy, and almost exactly as it has played out in Greece, with poor budget management leading to economic punishment from Europe, leading to rioting in the streets.
The story was shrugged off by the winners of the euro debate at the time, who with the momentum of historic change behind them claimed it was scare-mongering by a reckless financial media. Once instated, the euro could not collapse without economic chaos if member states tried to revive their former currencies, they argued. Now the markets are looking at the very real possibility of that happening.
There is still time to save the project, and indeed, it should be saved. But it will take an extraordinary effort not just by Jean Claude Trichet at the ECB, and the IMF, but by the leaders of the major European nations, Germany, France, and yes, the non-euro U.K., once it votes on a new government this week.
Like a mob fired up for action and unwilling to listen to any sort of protest or rational argument, global speculators are hitting Europe in every way they can...
The doomsayers now screech the same storyline to drown out the protests of politicians in Greece, Portugal and Spain that they did two years ago when Cayne, Lehman's Dick Fuld, Merrill Lynch's John Thain and Morgan Stanley's John Mack protested irrational and unjustified market forces were killing their companies.
Stop whining and listen to the markets, they argue. But the markets aren't predicting their demise, they are causing it. Like a mob fired up for action and unwilling to listen to any sort of protest or rational argument, global speculators are hitting Europe in every way they can, searching for any legal -- and questionable -- opportunity to benefit. The more riots and chaos, the better.
It's no surprise that two years after the financial crisis the names of people who made a fortune betting against Wall Street are starting to emerge in books and news stories. Hey, it's not illegal. They were smart. But Europe should realize the same types of folks are lined up against its interests right now -- rooting for it to fail and betting a fortune.
The theory that markets are efficient and reflect all possible information and therefore, are never wrong, is as flawed now as it was two years ago. As we've seen countless times in scandals from Enron and energy trading, to Sumitomo and copper trading, to Goldman and derivatives trading, markets can often be unbalanced, distorted, illogical, manipulated and subject to out-and-out fraud.
The euro can be saved. But Europe's leaders will need to trash their playbook and roll out a much more ambitious and expensive plan -- one that will call for an unprecedented degree of cooperation and sacrifice among each other and their nations. And they need to realize that at the moment, nobody is betting that can happen.
David Callaway is editor-in-chief of MarketWatch.
David Callaway is editor-in-chief of MarketWatch, responsible for the global news coverage of 100 journalists in 12 bureaus in the U.S., Europe and Asia. A financial journalist for more than 20 years, Callaway has worked for Bloomberg News, the Boston Herald, and assorted television and cable stations as a reporter, columnist and commentator.
It was fun while it lasted. The growth in retailers' sales during March, that is. April's results fail to keep pace, owing in part to where Easter falls on the calendar.
11:50 a.m. Today11:50 a.m. May 6, 2010 | Comments: 7
- traderjoe10 | 12:16 a.m. Today12:16 a.m. May 6, 2010
"Malignant market forces set sights on Europe: European politicians and central bankers are unsure what to do ... http://on.mktw.net/aiOQmL" 1:46 a.m. EDT, May 6, 2010 from dcallaway
"oops....looks like they did........should be an interesting few days ahead" 3:23 p.m. EDT, May 4, 2010 from dcallaway
"Both Dow and SPX under March peak support levels of 10,955 and 1,180...watch for more declines if they close here or lower....." 1:33 p.m. EDT, May 4, 2010 from dcallaway
"Fed can't delay market storm: It was always probably too much to expect the Federal Reserve would raise inter... http://on.mktw.net/9R8juN" 11:41 p.m. EDT, April 28, 2010 from dcallaway
"Each time the Fed delays on signaling a turn in the rate cycle, it risks a bigger reaction in stocks when it finally has to act." 4:46 p.m. EDT, April 28, 2010 from dcallaway
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