Palm Citys Horse Talk News

Weekly Economic Summary - February 24, 2010




OVERVIEW ~ The markets began the week of February 8th through 12th with the Dow Jones Industrial Average (DJIA) barely holding to its five-digit level at 10,012.23, and by the end of the day, the DJIA had fallen to 9,908.39. The week was more volatile than usual, and the DJIA generally rose or fell by 1% or greater each day. The 10-year Treasury note, meantime, began at roughly 3.55% and ended the week at roughly 3.7%. The Treasury note yield was rising as the week moved toward its end largely because the Treasury’s auctions of 10-year notes and 30-year bonds were rather tepid, taking interest rates higher. And those auctions most likely lost a great deal of their energy because a few days of rising confidence about the world economy convinced many investors to abandon the safe haven of Treasury securities and look elsewhere for higher yields.

FOCUS ~ Over the course of the week, the question of whether Greece will find a way to make good on its debts developed into a rich and telling story. On the one hand, we find here the reasons the credit markets will probably continue to experience choppy waters for some time to come. On the other, we are witness to a group of countries sorting out their loyalties and priorities.

The main theme of many financial newspapers’ analyses of Greece was that the country is so small and its economic output so insignificant, that it really doesn’t matter if it defaults and sinks into an economic crisis. The entire population of the country isn’t even as great as that of Los Angeles. The country’s Gross Domestic Product is roughly 3% of the European Union’s GDP. Was it even worth our worry?

Yes, countered other analysts, asserting that if Greece defaults, that will likely lead to other countries following suit, particularly if it allows them to avoid some of the pain involved in financial failure.

The argument seemed to turn to the political stability of Greece, whose workers have shown themselves very ready to take to the streets when their wages, pensions and benefits are in doubt. If any nation or group, such as the International Monetary Fund, offers to provide major assistance to Greece, the offer will likely include demands that Greece clamp down hard on all levels of Greek workers, and the result could be an insurrection that spreads to other countries.