"Sometimes on the way to a dream you get lost..." is probably the more accurate pearl of wisdom imparted towards Europe these days. We all know the Disney version ends, "and find a better one" - but that typically doesn't occur when you pull an 11th hour audible at the negotiating table - such as calling for a national referendum floated by Greece's Prime Minister Papandreou yesterday. It remains to be seen whether he will survive the week, and perhaps it was a genius political tactic, one that he could leverage in not delivering the trojan horse that would certainly become his country's default -
But with the German's?
The same folks who redefined what reveling in another's misfortunes is that they coined their own 13 letter word to describe it? Schadenfreude is as German as Kim Kardashian is American. And while that depressing truth paints a rather unfortunate picture of both respective parties, the fact remains the German's are almost as misguided in their role in the eurozone - that they could actually be provoked in cutting off their nose (Greece) to spite their face. The long and short of this is Europe is in real danger of pulling itself apart at the seams, if they don't find a unifying thread in the next several weeks - or sooner. It appears the inevitable has finally materialized, in which the market becomes acutely aligned with the increasingly fluid news cycle streaming out of Europe. I spoke of this missing relationship in an earlier note in October:
To a certain degree, last weeks decline and reversal was out of step with where the Europeans are within the crisis and their own set deadline. To expect that the market finale for the correction would end so discretely and without overlap seems naive at best and reminds me of when traders were celebrating the 20% rise in the SPX from the lows in December of 2008 - before the details of resolving our own banking crisis were enumerated by the Fed and Treasury. - What "Lies" Beneath
When I look at the charts and a few comparisons of similar market environments, what strikes me is how quickly the market gets to the point - after shaking the tree quite violently. I believe contributing to this dynamic is how closely the market zeitgeist is now following the parallels to the fall of 2008 (see, Here). Anytime the collective consciousness gets harmonized with the obvious - the market will pull an audible to balance those scales. The bottom line, however heartbreaking it may be - is that the financial system is now tethered more than ever to the U.S. dollar's every move. Until it decouples, there is tremendous headline risks associated with the now burgeoning practice of currency intervention that is quickly sweeping the globe.
Oh, and there's this meeting today and tomorrow at the Fed...
As always, stay frosty.