A Tide of Funny Money Denies Europe’s Drift

Fighting the Fed is one thing. But fighting a global monetary blowout? Forget it. The financial system is so glutted with virtual dollars these days that U.S. stocks would probably hold their ground even if nuclear war were to erupt. Although Friday’s news admittedly fell shy of that threshold, we might have expected a little more deference on Wall Street toward news that Standard & Poor’s had downgraded the credit of France and Austria. Granted, this could have shocked no one, since France had all but begged its comeuppance by pretending to be Germany’s co-equal in the ongoing eurobailout dog-and-pony show. Still, we had come to expect share prices to at least defer perfunctorily to such news, since prop-desk traders typically knee-jerk in whichever direction they expect their algorithm-driven, bipolar colleagues’ knees to jerk. Thus, when the news is ostensibly bad, as was the case on Friday, it’s supposed to cause institutional money to flow out of stocks, much as it flowed out of Carnival shares after one of its liners ran disastrously aground Friday off Italy’s coast.

Not this time, though. With Europe once again inching toward a supranational bankruptcy, the Dow fell a ho-hummy 49 points. This seemed especially unusual, if not to say unseemly, given that U.S. markets would be closed on Monday for the Martin Luther King holiday. Under the circumstances, we might have expected traders to take the precaution of fully discounting the scary euroheadlines that were certain to come over the weekend. As indeed they did. Even the Wall Street Journal, a reliable cheerleader for the pathetic, crackpot idea that massive new sums of ginned-up money can “save” Europe, weighed in with some uncharacteristically grim assessments. Gold, for its part, rose moderately, perhaps because the bullion bankers and their friends in very high places had gone home early Friday, the better to milk the long weekend for an extra half-day of idleness. Those guys live to suppress bullion quotes, as we know.  But with hot money flowing into dollars, they took a relaxed attitude, allowing Comex quotes to drift lower as the investment world shrugged off Europe’s latest financial relapse.