Daily Insight: Richmond Booms, Housing Hesitation, Euro Trash, and The New Vigilante

U.S. stocks took a little hit on Tuesday after Portugal and Greece had their credit ratings cut by S&P -- Greece thrown to junk category and Portugal down two notches to A-as S&P stated the Portuguese government could struggle to stabilize it relatively high debt ratio through 2012.

I’m not sure whether it was the credit downgrades of Portugal and Greece, or the assault on Goldman Sachs by members of the Permanent Subcommittee on Investigations -- a circus event that showed these senators have no clue how market-making or hedging works. Goldman is not a fiduciary no matter how many times a politician wants to paint them as such; they are a market maker, which means they’re on both sides of the trade. Not that the ignorance of the political class should come as a surprise, but maybe market participants are finally acknowledging that these are the same rubes creating upcoming regulations on the financial industry, regulations that will have ramifications well beyond Wall Street. Thus far the go-for-the-gusto market sentiment has blocked clear thinking but it is only a matter of time, the potential peril via this growing wave of populism-by-convenience will be recognized.

Are investors also awakening to the fact that the European debt problems are looking increasingly like contagion? European economies, heavily dependent on government expenditures, will run into additional growth problem no matter how they react to their debt issues, has to get everyone’s attention. If the EU countries in the target circle make the tough choices to get their public finances in some sort of order, then intense near-term and intermediate economic damage will result; if they don’t then higher interest rates and debt burdens will crush them both in the short and longer-terms – either way you look at it, Europe is going to work as a large drag on global growth.

It was a broad-based decline with all 10 major industry groups down. Financials and basic materials were the worst performers, with health-care and telecoms the relative winners.
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Brent Vondera, Senior Analyst
www.acrinv.com