Calling A Spade A Spade: Week of November 12

November 21, 2010

Major market indices fell last week. The DJIA lost 2.2%, the S&P 500 dropped 2.17%, and the Nasdaq gave up 2.36%. Growth stocks outperformed value stocks. And the small cap index lost 2.35%. The 10-Treasury yield gained 25 basis points on the week, closing at 2.78%.
The unity forged by the G20 member nations during the financial crisis has faded like denim in bleach. Last year, G20 leaders spoke of the "global economic community," and "working cohesively through difficult times." Now, with G20 leaders boondoggling in Seoul last week, fissures and concern replaced community and cohesion as member nations chart their own recovery paths.
The group set a June 2011 deadline for examining global trade imbalances, thus delaying the time frame for addressing the issue. The lack of decisiveness will likely encourage individual nations to follow their own typical policies. The United States, meanwhile, reminded other members of the G-20, especially China, that it has the most leverage in economic policy negotiations.
And while leaders around the world heaped criticism upon the U.S. decision to purchase $600 billion in Treasuries, President Obama told attendees that "the most important contribution" the U.S. can make to the global economy is a strong U.S. recovery.
Much of the excessive wattage stemming from this meeting correlates to the expanded number of voices, with the G7 have jumped to the G20-because 13 additional dissenting opinions should contribute to a general consensus.
So concludes this latest meeting, with little meaningful action of which to speak. In other words, with the 2008 financial meltdown fading further into the rearview mirror, its politics as usual.
According to a Bloomberg Global Poll, 75 percent of global investors doubt the Fed's plan to buy Treasuries will boost the U.S. economy or bring down unemployment, with sentiment being that the U.S. is pursuing a weak-dollar policy. Treasury Secretary Geithner has repeatedly said the opposite. But, like the boy who cried wolf and Chicken Little, repeatedly saying something does not make it so.
Granted, part of politics involves controlling the headlines. But please, Mr. Geithner. My seven-year old understands your dollar policy. So, I assume, must your trading partners.
At some point, though you call it a diamond, the rest of the world will call a spade a spade. Though, from their perspective, it may feel more like a club. Stay tuned...

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