Politicians Speak, The Markets Go Down

Politicians the world over spoke last week and the market did what it normally does in such cases, mainly go down. First up was the Republican debate which proved beyond a shadow of a doubt that the two leading contenders have their hair stylists on speed dial. Then came President Obama with his speech to a joint session of Congress that proved beyond a shadow of a doubt that his speech writers are spending way too much time watching infomercials. Pass This Bill Now! Last came the protestations of Greek Finance Minister Venizelos that his country would not default on its debts which brings to mind a quote most often attributed to Otto von Bismark: “Never believe anything in politics until it has been officially denied.” *

While Venizelos may believe his country won’t default, the market disagrees and I do too. Greek 2 year notes are yielding over 50% and that has default written all over it. The fact is that Greece cannot pay back what it owes – at least not in Euros – and some form of default is probably inevitable. How it happens is anyone’s guess at this point, but Germany appears to be tiring of playing deep pocket Dad to the rest of Europe. Juergen Stark resigned from the ECB Friday in protest of their purchases of peripheral debt and German Finance Minister Schaeuble has said in no uncertain terms that Germany will not approve more funds for Greece until they fully implement the required austerity measures. Could Germany leave the Euro? That is one of several possible outcomes in the long term, but for now, a direct Greek default seems more likely. Indeed, based on press reports, Germany is already preparing measures to support their banks in such an event.