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Stormy weather?



I've reverted to a "stormy" Calafia Beach photo in the banner in recognition of the recent extreme volatility in the markets, and because the looming debt and banking crisis in Europe is not likely to fade away soon. I'm not sure how this will all play out in the near term, but there is one thing the encourages me: the recent problems all revolve around the fact that quite a few sovereign governments (including ours) have exceeded rational limits of spending, intervention, and market manipulation. We are living through the initial stages of that wonderful maxim: if a trend is unsustainable, it won't continue. Greece is going to have to cure its profligacy, because the market is already demanding an impossibly high price if it doesn't: 35% interest rates on 2-yr money. Italy, the U.K., and even the U.S. are being forced to reevaluate the role of government, and it seems quite likely at this point that government will emerge smaller, rather than larger, once the dust settles. That is fine by me, but the statists will not give up easily. Battles will be fought, and nerves will be rattled, and markets consequently will be volatile. Waiting in the wings is a dynamic private sector that is just waiting to pounce once the public sector begins to weaken, and that moment is approaching.

Note: I'm not saying that the outlook is negative, only that the recent volatility is likely to continue. Things could bounce around a lot before good news has a chance to solidify the uptrend in equity prices.

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