A Good Time to Get Out of the Market

I started investing in the stock market in 2005. I didn't know anything. I thought of it as an experiment. Could I teach myself? When my ex-girlfriend sold (fortunately at the peak of the real estate boom) a condo she had purchased with money we had saved together during our 11-year relationship she paid me out my share of the principal, about $30,000. I took that money and opened a couple online brokerage accounts. At first I got bit by the irrational exuberance of the renewable energy stocks when oil was pushing towards $150 a barrel. For a moment I was looking like a genius. But in the end I made some hasty and poor purchases of penny stocks, and I lost thousands of dollars. Then came Lehman. Riding that out took some intestinal fortitude.

Now the stock market is back to where it was before the meltdown. And I'm getting out. Slowly I plan to unwind if not all most of my stocks before May. My reason? I don't think the eurozone is going to make it. This is from a naked capitalism post today, "Is the Eurozone Nearing a Make or Break Point?":

One of my colleagues studied in Germany, has extensive, high level political and economic contacts there, and reads the press daily. He also describes his sang froid as “somewhere between that of a Chinese sage and a dead animal.”

Needless to say, he not prone to overstatement or overreaction and also has a propensity to makes Delphic remarks.

He said the Eurozone is over. In pretty much those words, a simple sentence, no caveats or conditionals. I nearly fell out of my chair. This apparently reflects the German recognition as a result of the Italian elections that they will not be able to surmount domestic opposition in Italy and potentially other periphery countries and would rather pull the plug than continue funding their trade partners. He said there was a fair bit of discussion of Germany leaving the Eurozone after the election. I quizzed him on how they thought they could do that, since the new DM would presumably trade at a big premium to the Euro. We discussed that the likely outcome would be further labor “reforms”. Maybe I am naive, but I don’t see how this would not undercut an critical German strength, that of the good, if also sometimes combative, relationship between German workers and management. My source finally said widespread recognition of the existential impasse at most a couple of months away. He’s never this definitive.

There is an argument being made that the break up of the eurozone would be good for US markets; that it would lead to increased liquidity that would be pumped into infrastructure. Here's the naked capitalism response to this idea:

Anyone who can fathom how you get to that conclusion (beyond religious faith in the Fed), please explain it to me. Have they not considered what happens to all that debt the ECB bought if there is no Eurozone, or the Eurozone is very much shrunken? And Germany has so much nice shiny infrastructure already they had trouble in the crisis finding anything more to do on that front. This whole crisis is in large measure the result of the iron grip neoliberal thinking has on policy-making. That wasn’t dented one iota as a result of the global financial crisis. Why should a second eruption change that, absent a lot of further upheaval in terms of who is in the power seat?

For a good example of this "iron grip" of neoliberal thinking, take a look at today's lead unsigned editorial in the New York Times, Egypt Needs to Act. How should Egypt act? By embracing IMF-prescribed austerity:

Mr. Morsi’s job is to persuade the political opposition to join him in a suite of economic reforms that would raise taxes, trim energy subsidies and pave the way for a much larger $4.8 billion loan package from the International Monetary Fund. The I.M.F. loan, in turn, would open the door to even more aid and investment from financial institutions and other countries.

This is a perfect illustration of the mental illness afflicting elite institutions. The Times has been arguing vociferously against austerity on the home front (less so in the case of Europe). But overall the Old Gray Lady is still a megaphone for neoliberalism.