Markets Wax Exuberant Over Latest Eurodrivel

Stocks came roaring back to end the week on an ebullient note, supposedly encouraged by the latest evidence that Europe is finally putting its financial house in order. While the New York Times resisted the temptation to spread this drivel across the top of its weekend editions, the Wall Street Journal eagerly took the bait, offering up the following headline: “Europe Pulls Back From Brink”. Time for a victory lap for Europe? Not so fast. While we’d like to think that somewhere in the nearly 800 words that followed, the four Journal reporters credited with writing this mush-up would have provided some further details of the latest “plan” to “save” Europe, no such details were forthcoming. As far as we could determine, the manic buying spree that lifted the world’s bourses on Friday took its inspiration from whatever ephemeral hopes attach to the political ousters of top leaders in Italy and Greece. Perhaps that’s why the Journal went no deeper than a single quote from some hedge-fund dorkwad to substantiate the premise of a headline saying that Europe had “pulled back” from the brink. Here’s the quote, in case you, too, are looking for a reason to buy stocks come Monday: “Hope for better management in Greece and Italy is causing the market to breathe a bit of a sigh of relief.” That’s it. Re-read the story a dozen times and you’ll find no further explanation.

Recall that earlier in the week, the speculators and algo traders who have come to dominate the world’s bourses sold the Dow Industrials down nearly 400 points in the space of a few hours, joining in a global avalanche that caused hundreds of billions of dollars worth of valuations to evaporate. So why the sudden leap of faith on Friday? We’ll probably never know. In fact, most of the Journal story was devoted, not to Europe’s pulling back from the brink, but to vexatious fluctuations in France’s borrowing costs. They jumped last week when a supposed “technical error” caused the country to briefly lose its triple-A credit rating. Trouble is, yields failed to return to “normal” levels even after the bumbling halfwits at Standard & Poor’s announced that they had corrected the “error.” Of course, even small errors can matter gravely here, since France is being represented as Germany’s co-equal in various Rube Goldberg schemes to bail out Europe. France has committed itself to 158 billion euros worth of “guarantees,” and although a guarantee is “money” these days only in the most dubious political sense and in the eyes of the news media, France’s effectively worthless guarantee would be worth even less if the nation’s mythical credit rating were subjected to a downgrade, however slight.

Fearful Yields

How, then, do we account for the fact that French-bond yields have gotten stuck at mildly fearful levels even though the country’s triple-A rating was quickly retrieved by some clerk? On this question, the Journal was more helpful: “That yields haven’t since dropped again suggests investors believe the erroneous statement may still indicate the future direction of France’s rating.” Ahh, so that’s it! It would seem that France need only manage investors’ expectations more skillfully to squelch rising yields. On that score, budget minister Valerie Pecresse had an answer that should reassure us all: “This error is inexcusable and clearly raises the question of having much more regulation of rating agencies,” said Pecresse. Indeed. With any success, perhaps the bankers will move this campaign in a more positive direction, emphasizing “Hope and change!” as a theme for 2012.