Asian stocks fall as Greece reaches $170bn second bailout deal
Posted on 21 February 2012 with 1 comment from readers
Asian stock markets greeted news that Greece has reached agreement on a second bailout package worth $170 billion with lower share prices. The much anticipated good news is now over, so equities are saying what next, and don’t like what they see.
The Greek deal is almost an irrelevance but it seems inadequate to get the country out of its debt-fuelled downward spiral. Debt will still be 121 per cent of GDP by 2020 in the highly unlikely event of targets being reached. The private investors’s haircut will soon be revealed, and that is most probably not going to be such good news.
Discounting events
Why then did Asian markets take the Greek deal as a negative? Is it simply that the deal was already factored into equities and that now the markets have nothing positive to anticipate?
Or perhaps more cynically this is a low-volume market in the hands of professional traders and they are quick to cash out on this sort of rally. There have been plenty of warnings about the dangers of low share volumes and a rising market. Jo Granville thinks the Dow will sink to 8,000 (click here).
Those blinded in the blazing lights of the Greek debt drama can now also turn their attention to other issues. The rising oil price on the back of a growing geopolitical showdown with Iran, for example (click here). Rising oil prices and weak economies are a toxic mixture.
And how strong is the global economy really? It is only in US employment data that a few green shoots of recovery are observable. The European Union is in a mild recession. Japan is in something worse, and the Chinese slowdown is a new and worrying factor (click here).
More money again
Inflationary money printing by the global banks, and bailouts like that now seen again in Greece, will partially offset economic contraction. But the real beneficiaries will be the commodity producing nations whose income will continue to rise despite a recession or near recession elsewhere.
For the industrialized world still has to work its way through its pile of debts by a mixture of budget cuts and monetary inflation that are not compatible with higher levels of economic growth.
Selling shares against this unfavorable environment for company profits is probably a better trade than banking on monetary inflation to push share prices higher. Peak profits are in for this business cycle as Chris Mayer argues (click here).
The ArabianMoney newsletter is proposing a different strategy to its readers for this changing environment (subscribe here).
1 Comment posted by readers:
Another LTRO money creation binge is coming soon. That should paper over the problems for a few months. Note that the euro has already risen on the Greek deal news. Fear is off the table, for now. (They will probably need more money late next year. That should be entertaining to watch.)
If you make some quick profit on the stock market, don’t get too greedy. The high oil price will probably begin to slow down the entire world economy in a few more months. Quite a few people are predicting $5 a gallon gasoline across the USA this summer. I can’t see the economy expanding much at all, if it gets near $5 nationally. $4.30 a gallon, maybe, $5.00, no way. $125 per fill-up adds up fast as the weeks go by. Too many families will have to cut back on other spending if gas hits $5. That will bring growth to a halt. Just to put it in perspective, my electricity bill only averages $130 a month. And that is for an all-electric house with resistance heating, the least efficient heat there is. Gas stays above $5 in the States, and lithium car battery manufacturers might become good investments. The LNG truck makers too. Imagine what diesel will cost.