Farrell: Merkel's Mistake
Chief Investment Officer, Soleil Securities
Hey Angela and Chucky - What the heck?
That great old time Irish politician, Tip O'Neil, the late Speaker of the House from Massachusetts, is the first one I heard say "All politics is local."
It's been true since the time of Socrates but wouldn't it be nice if just once someone could rise above it.
Angela Merkel didn't.
Having lost a regional vote in Westphalia, the politic overcame all and she scrambled to pander to the electorate who are good and mad that she is involving Germany in the European bailout.
To show she is on the common-man's side she announced that evil bankers would no longer be allowed to sell certain stocks short, no short sales of credit default swaps, and the same for government bonds.
But all that stuff is done in London for the most part and she looks like an idiot. But she is standing up for the little guy.
Trouble is the market took one look at the statement and figured there is little to no coordination among the EU members and another worry was added to the debt crisis rattling Europe. Germany appeared to act quickly, even rashly, with little to no thought beyond the local political impact.
Which didn't work by the way.
But this is not the only reason the market is acting poorly.
First, we have been overdue for a correction and when overbought like we are, the market will take any excuse to square itself away.
The economy is still looking good, or better anyway, but maybe not as robust as the first quarter numbers. Retail sales are ever so softer and if you take away government transfer payments (like unemployment insurance) wages are not growing. Europe will clearly slow as a result of the turmoil they are in. China is being reined in by the government as it attempts to quell the possibility of a real estate bubble.
The financial reform legislationis struggling and while most Wall Streeters wish it would all go away, that ain't gonna happen.
The inability to muster enough votes for cloture, which was announced around 2 PM Wednesday, might encourage some who wish for the Senate bill to be weakened.
But the market hates uncertainty and getting it voted on and into conference would remove some uncertainty. There are aspects of the already passed House bill that are more amenable to Wall Street interests. The House bill, for example, does not require the "push out" of derivative desks.
If this wasn't enough, NY Senator Charles Schumer had to get back into the spotlight and wants China labeled a currency manipulator.
This as Secretary of State Hillary Clinton was finally able to get China and Russia to agree to a greatly weakened sanction package against Iran.
Senator Schumer wants tariffs and penalties imposed on countries with "misaligned currencies."
China just might be upset that Europe, their largest export market, is entering a slowdown and their renmimbi has strengthened against the euro (as has the dollar). And is this the thanks they get for aligning with the US in their sanction push against Iran?
Back on the home front, the CPI was announcedand the annual rate of increase for the core reading (ex food and energy: and the statistic the Fed pays attention to) rose only .9%. That is the slowest advance since 1961. The threat of deflation is still on the table and cannot be ignored.