As I opined in an earlier posting this week (Today's Relief Rally) the European deal announced last week that lifted the market was nothing more than window dressing since the deal did not name or address who or what would be taking the bond haircut of 50%. Now comes the news that Greece is going to hold a referendum on the deal, instead of voting on it in the legislature. Imagine that Greece, where democracy was founded and something the country has run from for several centuries has rediscovered that form of government at just the wrong time. I suppose the representatives in legislature do not want to deal with the issue, so much for a republic.
Anyway if you believe the Greek people will actually vote FOR austerity measures then call me about buying some overpriced stock from me now. The worry here is not that Greece is going to default on it's loans, since anyone with a brain and involved in investing or finance knew this all along, it is that this idea of democracy just might spread. So imagine Italy, Portugal, Ireland, Spain, and France deciding to let their people vote on defaulting on their bonds and moving along without a care in the world after all of course voting No. Pensions, social programs, and such continue as they are for some time longer since the pressure of paying for those messy loans is gone. But of course soon the need for more loans will arrive since these countries were already living above their means and someone else needs to loan them to the money to continue to do so. Trust me no credit cards will be coming in the mail and REAL austerity will be at hand.
Now if you think all this democracy stuff has not escaped the attention of a certain US president then you are correct. Mr. Obama felt relief just last week when he and German Prime Minister had created what they thought was a document that would make "peace in our time" or at least hold the house of cards together until after a date in next November. This idea of democracy threatens to make this house of cards collapse nicely before that date and blow the world economy apart. That of course will make the September 2008 financial problem and resulting Democratic takeover of the government be put in reverse next year. How much you want to bet Mr. Obama has placed a call to the Greek Prime Minister with words such as "what the hell are you doing"?
Now all this democracy could bring our day of reckoning for the world debt bubble to finally go boom. Yes, the real problem here is the worldwide buildup of debt. Household debt, government debt, and in some cases company debt. The only good news here is that US states and many corporations have trimmed their debt and started to get their houses in order, but the BIG debt bubbles remain. Not sure when this fun will begin, but it will begin and it will not be pretty. Will democracy continue in Greece? Will Mr. Obama squeeze the Greek Prime Minister enough to make him delay this a few more months? Will Angela Merkel say to heck with it all and go back to Germany and her safe warm economic blanket there? Will investors sense the end and flee? Of course the question is flee where? Believe it or not the bond king Bill Gross has begun hiding his funds money in US government guaranteed mortgage issues instead of US government debt, so go figure there. Think about that again, hiding money in MORTGAGES, how about that for back to the future. As I have said earlier if you own US Treasury bonds you might want to move some capital elsewhere.
Our date with financial destiny could be at hand or it could be put off awhile longer stay tuned. Frankly there are NO safe places to hide.
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