MONDAY MAY 10, 2010

Delaying the Game.

The markets are breathing a sigh of relief today after last week's sell-off.  After dragging their feat, the Euro-zone and the International Monetary Authority got its act together and put a $1 trillion "package" (don't call it a bailout!) together that, at least for the moment, addresses the Greek tragedy.  So, today, the markets are up 333 points and has recovered roughly two-thirds of what is lost last week.  Crisis averted?  Not really.  More like a delay of the game.  But It does give the market's some breathing room.

This weekend's deal does nothing more than delay the inevitable.  Much like the guy who takes out a home equity loan to pay off his credit cards, Greece has too much debt and has simply postponed the inevitable by refinancing it.  In return for the loan package, Greece has "promised" to go on "austerity" for three years.  I am sure that will be a boon for economic growth in the land of Zeus!  Does anyone think that the Greek economy, after three years of "austerity," will be better able to pay off this debt in 2013?

The European Union and Euro currency were created by the 1992 Maastricht Treaty.  The treaty outlined several criteria for membership.  One criteria was a maximum deficit-to-GDP ratio of 3% and another was a debt-to-GDP of 60%.  Today, Greece's ratios clock in at 13.6% and 115% respectively.  As Bob Uecker's character in Bull Durham would say, "just a little outside" the criteria!  Thus, the need for a loan "package."  And by the way, please don't call it a "bailout," because the Maastricht Treaty strictly prohibits members from bailing each other out.

I do think there are a few silver linings in all of this.  First, the focus can now return to the great earnings reports being posted.  Second, the Greek Tragedy has shown a very bright light on the debt levels of sovereign governments around the world, including various US states like Californian and New York and yes, even Uncle Sam himself.  Here's hoping the politicians can see the light!  

POSTED AT 1899-12-30 14:03:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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