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Haircut argument hurt Wall Street

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by Peter Switzer

Europe took Wall Street up, then Europe took the major US indexes down but they still finished in positive territory. Euro-news is the main market-maker or -breaker and it was a report in the Financial Times that took the steam out of a three per cent rally. And, yep, it was another 'they can’t agree' story on the EU and Greece that robbed investors of the early confidence that took the market up.

The debate is over how short a haircut bondholders should take with Greece, and as we can see, EU unity on the debt drama gives the market plenty of life but disunity is death for stocks.

Positives and negatives

In the final wash up, the Dow ended up 146.83 points, or 1.33 per cent, to 11,190.69 while the S&P 500 put on 12.43 points, or 1.07 per cent, to 1175.38. The finish was OK but not great but that’s because Europe is still debating how to fix their problems.

One positive development was that the Greek parliament passed a tough tax law for property, which was a part of the austerity package, and that was a promising sign. If the Greeks could not pull this off, then the eight billion euro loan from the EU and the IMF to help the struggling economy could have been history.

Not helping was a report that the European Investment Bank wasn’t a part of yesterday’s rescue plan, but worse still, it had no plan to be a part of the plan!
I reckon the fact that Europeans drink a lot of very strong, black coffee explains why they can be so erratic!

Those looking for some good news, home prices went up for the fourth month in a row, though forward guesses by economists remain subdued.

Watch Greece

But the US economy has become a co-star in this European drama — Greece is the word.

"We are at the moment of truth for Greece," European Commission spokesman for economic affairs Amadeu Altafaj said, according to Reuters. "This is the last chance to avoid the collapse of the Greek economy. The criteria must be fully met in order to allocate the funds."

Apart from the property reform, the Greeks have to cut their public service of 730,000 by one-fifth, close down dozens of unproductive state bodies and privitise loss-making government-owned businesses.

Interestingly, 92 per cent of Greeks say the measures are unfair but 77.8 per cent of them still want to stick with the euro!

This Euro-drama still has a lot of ‘acts’ to go before the curtain falls on this long-running show. And that means we will see big ups and downs on the stock market.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Wednesday, September 28, 2011

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