Cashin On Equity's Premature Victory Lap
Whether its performance-missing anxiety or premature exuberance, UBS Art Cashin notes (as we did on Friday) the disconnect between Bonds' less sanguine appearance and equity's which "seemed determined to take a victory lap even before the polls opened – forget about closed." As Cashin notes, equities were also helped by the quarterly expiration as well as the S&P reweighting which seemed to keep a bid under stocks throughout the day. As the week will be focused on attempts to form a Greek government (in a relatively light macro data week), the avuncular Art summarizes perfectly the situation as "Greek elections may just delay and not decide" as markets appear to be sensing the stalemate and yielding initial gains.
Markets Decide Greek Exit Fears May Be A Trojan Horse
While the financial media on two continents was on full Def Con alert about the weekend Greek elections, markets assumed the fix was in. Maybe that declaration requires a bit of an explanation. Debt markets (that would be bonds if you are burdened with a graduate degree) remained a little nervous, with yields in Spain, Italy and the rest of the periphery hanging close to recent record highs.
Equity markets seemed determined to take a victory lap even before the polls opened – forget about closed.
European stock markets closed in a celebratory manner.
The Greek Elections May Just Delay And Not Decide
As we suggested long before the election, the results would lead to discussion and not decision. Even if Syriza had won a lopsided victory, I doubt they would have simply dropped the Euro. They, along with all the other parties, wish, primarily, to negotiate a less onerous austerity package to win the thanks of the populace. That posture will likely complicate or, maybe, prevent the formation of a new government. On paper, New Democracy should link up with Pasok to form a government. The compromise might be for Antonis Samara (head of New Democracy) to stand aside and allow for the appointment of a Mario Monti style technocrat to act as Prime Minister.
The trouble is Pasok wants Syriza inside any coalition (see Lyndon Johnson’s quote about “inside the tent”).
Pasok fears that Syriza, or any non-coalition partner would spend the next few days and weeks and months carping from the outside, blaming the coalition for each new sacrifice imposed upon the populace. Then, in a few months, the outsiders could force yet another election, winning full control as the popular outsiders.
Markets appear to be sensing another possible stalemate and are yielding initial gains.