Greece Hits U.S. Stocks Again

After rising every single day last week, the stock market is sharply lower today. The S&P 500 rose from 1,154 to 1,216 last week and we’ve been as low as 1,193 this morning, so we’ve given some of our gains back but not all of them.

As you might expect, investors are again worried about Europe. Again. Now we’re being told that it might take until October for a bailout plan to be in place. This is a repeat of the similar pattern we saw over the summer when stocks fell sharply on Monday due to the political uncertainty created over the weekend.

Greece’s 10-year yield rose 163 basis points to 22.82 percent while two-year notes added 513 basis points to 60.0 percent. The notes rose for the first week in two months last week as traders trimmed bets for a pending default after the leaders of Germany and France signaled a commitment to keeping Greece in the euro area. They had climbed above 80 percent for the first time on Sept. 14 amid speculation the country wouldn’t be able to meet its obligations to investors.

The policymakers seem to think they can solve this matter by an endless series of half-steps — just enough to claim that they’re doing something but not enough to truly change course.

President Obama has introduced his plan to cut the deficit by over $3 trillion over the next ten years. The proposal includes tax increases and a New York Times article indicates that the president will veto any plan that relies on spending cuts alone.

Under Mr. Obama’s proposal, $800 billion of the $1.5 trillion in tax increases would come from allowing the Bush-era tax cuts to expire. The other $700 billion, aides said, would come from a combination of closing loopholes and limiting deductions among individuals making more than $200,000 a year and families making more than $250,000.

Mr. Obama’s plan will hover over Congressional budget-cutting negotiations that are under way over the next two months. A bipartisan Congressional committee is charged with coming up with its own cuts by Nov. 23; unless passed by Congress by Dec. 23, $1.2 trillion in cuts to defense and entitlement programs will go into effect automatically in 2013.

Mr. Obama, however, is challenging the Congressional committee to go well beyond its mandate. “He’s showing them where they could find the savings,” one administration official said.

This seems to be setting up Congress and the White House for another showdown, except this one will happen closer to an election.

Posted by on September 19th, 2011 at 9:53 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.