Market Talk

Okay, we’re going to do this in two parts. Part one, the straight up (for the most part) news:

US stocks see their sharpest gains in months, as all the selling gets upended over rumors about some kind of bailout package for Greece. DJIA surges 150 (1.5%) to 10059, S&P 500 jumps 14 (1.3%) to 1071, Nasdaq Comp gains 25 (1.2%) to 2151. It’s the Dow best percentage gain since Nov. 9. Late slide trims gains. The bulls were grasping for anything to cling to, so the vague rumors about Greece were perfect. As of this moment, there isn’t anything definitive, but rumors are rampant that other European countries, notably Germany, are going to help their struggling neighbor.

Now, for part two, the skeptical deconstruction.

Josh Brown, who writes The Reformed Broker blog, had a perfect crack on Twitter: “Market rallying with all the conviction of Goldie Hawn denying she’s had plastic surgery.” Aside from the fact that I like Goldie Hawn and would like to believe she hasn’t had plastic surgery, that’s dead on.

There is so much moral hazard, and legal obstruction, around any attempts by the strong EU countries to a Greek aid package, it’s hard to imagine they’ll be able to come up with one that will actually solve all the problems.

First off, they don’t want to do it. The last thing the Germany want to do is spend their own money to bail out the Greeks. Latest rumors are circling around “loan guarantees.” But whatever the details, if you help the Greeks, who else do you help? Is there a line to be drawn here, once you start down this road? This isn’t a choice between Lehman and Bear Stearns, after all.

Then there’s the anti-bailout clause in the Maastricht Treaty. Any package will have to be called something else, and can’t be in the form of direct financial aid. Germany could provide the Greeks with some vague loans, or some kind of development project-type stuff, to fix their roads or something, as my colleague Madeleine Lim commented. They’ll find some way around the rules.

Unless they just decide to hell with the anti-bailout clause, which is essentially what they’re doing. In which case, you can say, to hell with the treaty itself, can’t you? Once you chip away one block, with no ill effects, another chip is inevitable, and so on, and so on. and so on, until it’s goodbye to any ideas of the euro as the world’s reserve currency.

Remember the liquidity swaps the Fed engineered with foreign central banks? As Joan McCullough at East Shore Partners points out, those expired on Feb. 1. Think those helped paper over some problems? Possibly. But that game’s up as of this moment.

The bulls were desperate, and ready to grab at anything. These Greeks rumors were the perfect tonic. But the Greek situation won’t be fixed overnight with some aid package. No matter what happens, there is going to be a considerable amount of pain there. And the other “PIIGS” are looking at the same thing. And the United States has its own problems as well. See today’s JOLTS data? There are still more than six unemployed people for every job opening. And, as we reported this morning, employers have slack in their work forces, in terms of man-hours, equivalent to 2.5 million jobs.

We’ve all got a long road ahead of us. There just aren’t any simple, quick solutions.