Home > Uncategorized > 2012/02/014: Quick Post: OGB is back!! But is the cure worse than the disease?

2012/02/014: Quick Post: OGB is back!! But is the cure worse than the disease?

© 2012 ROHR International, Inc. All International rights reserved.

“The operation was a huge success. Too bad the patient died.” If it wasn’t so serious, it would be a good giggle akin to that old joke.  We are referring to the OGB movement. You’ve all heard of OWS, the Occupy Wall Street movement. Well, even though Germany backed off from the truly insane idea of having a budget overseer resident in Athens, about the same effective function is being demanded by the lenders controlling the funds for the Greek Debt Dilemma bailout.

We refer to this as the Occupy Greek Budget movement, or OGB. If there was any real institutional cultural memory (of which we often lament the lack), this is the last thing the Germans should have found acceptable. How quickly they forget. Well, maybe not so quickly. However, they obviously are failing to consider how they felt when French troops occupied Germany’s Ruhr valley after World War I (a good example of why forced repayment doesn’t work) to co-opt the profits from German industrial output because… they could not keep up with their payments.

In that instance it was of course war reparations, whereas current circumstances are more so a case of Greek malfeasance. That said, draconian cures do not often create sustainable solutions to the worst sort of problems. It calls for more creativity than that. And for all the Greek political class is significantly responsible for the problems now foisted on the general population, perhaps the bitterness of the Greek people will indeed end up driving a solution to the problem. There is one radical alternative nobody in Greece seems to have worked out just yet

Declare war on Germany. That’s right, take off the gloves and get down to bare-knuckled battle not on the steps of the Greek Parliament, but in Frankfurt and Berlin. Pretty daft, huh? Well anyone who thinks that forgets the plot of a very popular little comedy back in the day (a.k.a. the Stone Age): The Mouse That Roared, starring Peter Sellers in the movie version (1959).

In this wonderfully satirical view of the fortunes of the vanquished seeming to eclipse the success of the victors after World War II, the tiny Duchy of Grand Fenwick expects a quick and total defeat (since their standing army is equipped with bows and arrows) after invading the United States. It will confidently rebuild itself from the largesse lavished on the vanquished… just like World War II; such as the huge amount spent on, oh yes, Germany as part of the Marshall plan.

All Greece would need to do is arrange safe passage for its army through Macedonia, Serbia, Hungary and Austria to arrive at the German border. After which it would be within striking distance of Munich. That might be a more appropriate target in any event, given that the burgers of Bavaria are some of the folks most averse to providing it with more cash.

Of course, as soon as the Germans fire a single shot the Greeks will surrender. That should avail them of all that extended reconstruction funding. Also of course, the end of the exercise would need to be altered just a bit from the reality after the end of World War II. The US Marshall plan was an effort to buffer the devastated European states from becoming Far Left Socialist or Communist countries.

Might be a bit late for that in Greece’s case. However, that does not diminish the degree to which the current efforts might be the cure that is worse than the disease. That is because the current extreme austerity demands on an already significantly weakened (five years of recession and deepening) Greek economy are not likely to create the desired fiscal rebalancing.

There was an excellent summary article from Reuters this morning on the mad Greek dash to meet the demands of its lenders. It revisits a question we have asked repeatedly about whether all this austerity is really going to help?

Here’s the bottom line: Frau Merkel and her minions are leading Europe into the next Great Depression. Sound a bit radical? Well, consider that both the previous and current downgrades from rating agencies were based in some measure on the uncertainties over resources that are devoted to tackling the crisis… and that was due in part to Europe’s “increasingly weak macroeconomic prospects” (according to Moody’s once again this morning.)

Markets are responding accordingly, at least as evidenced by the degree to which the primary government bond markets have been reinvigorated in the last few days seemingly because of the “Greek solution” not really working. If the Greek Parliament clarifying the sources of the additional €325 million of budget cuts (which the European Union and International Monetary Fund want to be sure will be forthcoming) was really addressing the problem, we would suspect that the equity markets and the euro would also be performing better.

As they are not, it will be very interesting to see what transpires if representatives of the lenders accept the latest Greek concessions as sufficient to warrant extension of an additional €130 billion of rescue funding. Maybe the temporary weakness of the equities and euro (as well as commodity currencies dependent upon a robust global economy), and the strength of the primary government bond markets and US dollar are all just a minor correction of recent trends. However, if those trend tendencies should continue after confirmation of a Greek Debt Deal, it would be reinforcement for the idea that extreme austerity measures without any countervailing stimulus to assist Greek economic growth are more of a disease than a cure. We shall see.

General Market Observations

Markets remain much the same noted previous on the generally improved economic data and earnings encouraging the equities. Yet in spite of the somewhat more upbeat indications on the Greek front of the European Sovereign Debt crisis, the recent strength of March S&P 500 future above 1,310-15 has once again stalled at no better than 1,350-55. However much bulls want to tell us that the S&P 500 on a normal multiple of projected earnings should be trading up between 1,450 and 1,500, the market seems to have different ideas about the real world outlook. The key serial resistances remain at the 1,352.70 and 1,367 areas (the early July reaction high and top of the rally into the exhaustion high early last May, respectively.) As usual, trend dynamics have taken on their typical perverse evolution insofar as the burden of proof is now obviously on bulls to put the market up through those resistances.

EXTENDED TREND IMPLICATIONS

The government bond market activity has been very choppy in the face of the previous round of quasi-euphoria over the prospects for a solution to the Greek Debt Dilemma. Even if the March T-note future perversely (due to it being long-dated bond of the country which ostensibly is leading the economic recovery right now) has held up much better than Europe, it finally made it down for a test of interim support at 130-20 last Thursday. Yet that left it well above a late January test of its more important 129-24 support. And while it has also been more subdued on the upside, its overall trend direction remains up for now.

In foreign exchange, the significant US Dollar Index failure back below (i.e. Negation of) its .7950 UP Break on the Fed’s endless liquidity provision indications two weeks ago reversed what had been a reasonably firm trend early this year. Failure to get back above that area in recent trading is a weak sign, even if there is extended resistance back into .8070-50. Next lower support of any substance is into .7800 area, with more major supports into .7650. That is also consistent with the reversal of the euro on a fresh EUR/USD 1.2925 UP Break out of its downward channel (from the major 1.4248 October high.) There is a somewhat higher interim support in the mid-1.3000 area previous resistance as well. While there is initial resistance above the market at 1.3400-1.3360, the more major resistance remains 1.3500-40.

And it will be the case on any failure of the equities that those levels at US Dollar Index .7950 and EUR/USD in the mid-1.3000 area will need to be watched closely for any potential reversal of the current short term trend. That is because over the past several weeks the key moving averages and daily MACD indications have crystallized around those areas in a way that would suggest a reversal of the recent trend if they are violated.

Along with that the true industrial metal has seen the March Copper future stall right back its 4.00 major congestion (from the first half of last year) and DOWN Break level (last September.) It does not seem consistent therefore with the better global economic outlook equities bulls are attempting to ascribe to the recent rally. That said, the 3.65-3.50 range remains hefty support.

Thanks for your interest.

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