Home > Market Set Up > “The Canary in the Coal Mine.”

“The Canary in the Coal Mine.”


As in previous blogs, I have been keeping track of the progression of the Greece bailout. The US markets have been going up as the Euro is strong against the Dollar. Right now not even a spike in jobless claims can keep the US markets from going up, but the collapse of the Euro is still on the table. And since the Fed seems to be content keeping the rates in place until probably after September elections, the only catalyst seems to be the Greece bailout.
Where it stands now is the Euro-zone leaders have pledged $45 billion package of loans to Greece to keep it from the brink. However, this Tuesday at a meeting of the American Enterprise Institute, the fiscal outlook in Europe was identified as the leading downside risk to global economic recovery.
Nouriel Roubini referred to Greek Crisis as the “canary in the coal mine.” Saying that the fall of Greece could lead to the fall of Spain, Portugal and Ireland. And with this would be collapse of the Euro.
Desmond Lachman, a former IMF official and pictured above, said that in the near term the USD/EUR will likely move towards parity. He compared the Greece bailout to that of Bear Stearns by the Fed. Seven months after they bailed out Bear Stearns, the passed on bailing the Lehman Brothers rescue. Thus triggering the beginning of the global recession.
Can the Euro have that dramatic of an effect on us? That remains to be seen and can be a point of debate, but I certainly think it’s important to keep an eye on this as it recently has had a direct correlation with our markets.  A stronger dollar would expectedly take the wind out of the sails of the US markets.

EUR-USD grinding ever lower as dollar stregthens.

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