Crazy Like A Fox
Research for Online Investors

by John Dalt

11/3/11

The European Central Bank (ECB) surprised the market this morning with an interest rate cut of 0.25% to 1.25%.  President Mario Draghi met the press for the first time after the announcement.  He replaced Jean-Claude Trichet on Tuesday.  Draghi told reporters the rate cut decision was unanimous by the ECB’s 23 member governing council.

Draghi downplayed the central bank’s bond buying program going forward. He said, “Our securities market program has three characteristics: it is temporary, it is limited, it is justified in restoring the functioning of monetary transmission channels.”

The Greek drama has taken more twists and turns in the last few days than a Grand Prix course. Prime Minister George Papandreou famously called for a voter referendum on Monday. This threw European Leaders into confusion. Many had not even unpacked their bags from Brussels, where they hammered out the agreement on an enhanced EFSF to save Greece. Papandreou’s feet had been held to the fire by inspectors from the European Commission and IMF to make sure promised austerity measures are enacted.

Now after all the work is done, he wants to put it to a vote?  Papandreou is facing a “no-confidence” vote in his parliament tomorrow.  This morning European leaders said they were prepared to let Greece exit the European monetary union and drop the euro as their currency if the referendum vote rejected the bailout.

Opposition leader Antonis Samaras said Papandreou should resign so a national unity government would run the country until snap elections could be called.  He said the parliament should immediately ratify the $178 billion bailout and cancel the referendum.

What?  Now the opposition is in favor of the bailout package!  Papandreou withdrew his requirement for a referendum on this news.

Is he crazy like a fox?

He now has the opposition party painted into a corner…and stock markets rallied on low interest rates and political support for the bailout in Greece.  There is only one problem left now…Papandreou has to survive the no-confidence vote on Friday.

We don’t know if Papandreou planned this in advance, or just bumbled through the last few days.  The opposition has called for him to resign, that he is a liar and cannot be trusted.  Such is the refuge of politicians that have been cornered with a losing hand.

The market’s rally is against our contrarian tendencies. Why did the market start rallying yesterday during Ben Bernanke’s press conference? He lowered expectations for GDP growth and raised projections for unemployment. Is this the language of bull markets?

We are agnostic.  The voting in the stock market is occurring, the results seem bullish.  But, where is the volume?  We had heavier volume on Monday and Tuesday when the market moved lower, but lighter volume on Wednesday to move higher.  We don’t know, our crystal ball is cloudy…but it all seems a house of cards.

I am amazed at the talking heads paraded across the stage on business programs telling us how undervalued stocks are.  Where the heck were they thirty days ago?  Where will they be in thirty days?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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