Ugly-Uncertainty is Never Bullish for Markets

Roubini might be right again this time. He got some help from Korea. The contagion in Europe has spread to Spain. Spain has always been a profligate spender of other people’s money. Infamously, they implemented a “Green Jobs Program” that Obama wants to emulate here. The subsidy cost over $800,000 per job. More Spanish banks will fail, and the Euro will continue to be destroyed. Credit risk in the interbank market has escalated significantly. For evidence, look at the short end of the yield curve. CME Group Eurodollars are down 11 points at 5AM this morning. Generally, in market melt downs, the short end of the yield curve gets bid higher in a flight to quality.

The situation in the US isn’t hunky dory. We have a major oil spill in the gulf. We have very high unemployment, U-6 is 17.1%. We have a bill before Congress on financial regulation that is abysmal. Yesterday, Senator Casey, Democrat from Pennsylvania, introduced a bill that would bailout union pensions to the tune of $146 billion and counting. Do they want us to pay their dues too?

Meanwhile, on the other side of the world, the two Koreas are saber rattling. Intelligence evidence points to Kim Jong Il authorizing the South Korean warship to be sunk, killing 46 seamen. Overnight, the US said that they would be participating in some training maneuvers near North Korea.  Additionally, South Korea has suspended all trade with the North.

China and the US are currently in joint talks over what to do about the world’s economic environment.  Treasury Secretary Tim Geithner is over there as we type.  China can control North Korea to some extent, and they have been noticeably silent throughout this whole ship sinking ordeal.  Now that the saber rattling has intensified, we wonder what they are thinking.

The US has a treaty with South Korea to protect them from the North, or any other attacker in an act of war.  Similarly, China has an agreement with North Korea.  We have had an act of war.  What happens next?  28,000 combat ready US troops are in South Korea.

Keynesians insist it was the New Deal that got us out of the Depression.  However, it really  was World War Two.  Keynesian government stimulus spending has a multiplier effect through the economy of zero, or close to zero.  No one is betting on a Korean War Two to get us out of this mess.  It will only make things worse.

Meanwhile, I was sitting with my wife along the wall on Lake Michigan around 6PM yesterday.  Marine One shuttled by. Obama is in town to ride bikes with his kids.  Nero is fiddling.

UPDATE
I was incorrect in my statement about the President being here. He wasn’t. But, I did see Marine One in a training mission. Two Marine helicopters with a big Sikorsky Buff trailing behind. Instead, he is blowing off Memorial Day at Arlington Cemetery and coming to Chicago. I find it offensive that a sitting President would not attend a service to the fallen soldiers of this nation at Arlington Cemetery on Memorial Day.


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