In Between Days: Greek Salad

by CC November 4, 2011 12:14 am • Commentary


Stocks rallied for a second day on Thursday as Greece backed away from a proposed referendum that threatened its membership in the euro, which could destabilize global markets.

News out of Europe has kept investors on pins and needles for months. Investors are worried a possible default by Greece could trigger another financial crisis that could spread beyond Europe.

The European Central Bank provided a happy surprise early to investors with an interest rate cut, a sign of a more aggressive approach to confront weak growth in the region.

Greek Prime Minister George Papandreou backed away from his referendum proposal that could have derailed last week’s long-awaited agreement to cut Greek debt and shore up European banks.


With the drama in Greece is looking more and more like a soap opera rerun, the new president of the ECB took center stage this morning with the announcement of a quarter point rate cut. The risk-on trade is back — both in Europe and the US. The S&P 500 closed the day up 1.88% to sneak back into the green year-to-date by a fractional 0.28%. But we’re still 7.51% off the interim high of April 29.

From an intermediate perspective, the index is 86.4% above the March 2009 closing low and 29.4% below the nominal all-time high of October 2007.

Felix Salmon

In Greek tragedy, humans don’t rise above events to triumph; rather, they are crushed by forces greater than themselves. (It’s one reason why The Wire was such an innovative piece of television: it reached back past that great humanist, Shakespeare, to his Greek antecedents.) The architects of the eurozone displayed classic hubris: they saw the increasing economic ties between the various countries and locked themselves in to a momentum trade where such ties could only ever strengthen and never weaken.

And in the event it took much less time than even the skeptics had anticipated before that hubris resulted in the inexorable nemesis.

There is a decent chance that the G20 summit will somehow muddle through in Cannes. There’s even a possibility that Greece will manage to extract itself from its current political mess, implement the reforms that Merkel and Sarkozy are insisting on, and live to collapse some other day.

But at this point I see no sign of the pan-European unity at the head-of-state level which is needed to preserve the eurozone project over the medium term. Commeth the hour, commeth the backbiting and finger-pointing and recriminating. Greece is going to default and leave the euro; the only question is when. And when it does, the EU will find that its protections against contagion are about as effective as that $1.6 billion tsunami breakwater in Kamaishi.

Greece can fall and the eurozone can still survive. But Italy — which is just as politically dysfunctional as Greece — can’t. Which is why those Olympian forces will ultimately spell the end not only of Greece’s membership in the euro, but also of European monetary union more generally.


Call it the mother of all margin calls: Up to 50,000 former customers of bankrupt broker MF Global must find some $1 billion in additional collateral almost overnight, or be forced out of their trades.

Come Friday, with the mass transfer of commodity trading accounts from Jon Corzine’s fallen firm to six of its erstwhile rivals, margin clerks will be wrapping up a reckoning of how much additional money is needed to cover millions of positions. Clients who can’t quickly meet their margin will have to liquidate, making for a tumultuous day’s trade.

A court order to move the trades late on Wednesday brought only marginal relief to clients who have been essentially frozen out of their funds and positions since Friday. While accounts will now be transferred more quickly, only 60 percent of the collateral will be moved to the new brokers.

That figure may yet fluctuate as brokers scramble on Thursday to work out the details, but the net result is still likely to mean that customers will be forced to post a hefty sum within a day or two. Many of MF Global’s mainly small-scale clients may fail, triggering a mass liquidation of both short and long positions that may roil markets.


As investors clamored for shares, Groupon, at the end of the day, priced its initial public offering at $20, above the expected range of $16 to $18. The stock sale values the company at $12.65 billion.

The demand, in part, is driven by a lack of supply. The current owners are holding on to their stakes, and Groupon is initially selling just 35 million shares, roughly 5 percent of its total, according to two people with knowledge of the offering.

While it’s an exceptionally small pot, it’s not a novel template. Groupon is following the lead of several Internet companies this year, which have favored small offerings to help buttress their stock prices.


Remember that super-hot LinkedIn IPO? Well, now’s your chance to buy more new LinkedIn stock!

Although you might want to wait for it to stop falling first: LinkedIn shares are down 7% after hours, on news the social-networking thingy is going to issue $100 million more in shares.

The stock was recently trading at about $78, compared with its opening-day closing price of $94.25.

Here’s their release:

LinkedIn Corporation (NYSE:LNKD) announced today that it has filed a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) for a proposed public offering of shares of its Class A common stock. LinkedIn is proposing to sell approximately $100 million of its shares, as well as any shares issued to the underwriters to cover over-allotments. The remaining shares will be sold by existing stockholders.

The principal purposes of this offering are to raise capital for the company, facilitate an orderly distribution of shares and increase the company’s public float. The proceeds of the primary portion of the offering will be used to provide additional working capital for LinkedIn, including further expansion of its product development and field sales organizations, for capital expenditures and potential strategic acquisitions or investments. As part of the underwriting procedures, all selling stockholders, as well as all officers and directors, have agreed to lock-up agreements for a period of 90 days following the offering.

Pragmatic Capitalism

Both optimism and pessimism about the short-term direction of stock prices were near their historical averages in this week’s AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.8 percentage points to 40.2%. Even with the drop, this marks the third time in four weeks that bullish sentiment is above its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.8 percentage points to 30.2%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded 4.6 percentage points to 29.6%. Even with the increase, pessimism stayed below its historical average of 30% for the second consecutive week.

This is the first time since July 2011 when we have had consecutive weeks of above-average bullish sentiment and below-average bearish sentiment. Though marking an improvement in attitudes to toward the market, it is important to note that both readings are very close to their historical averages. The ongoing European debt crisis, slow domestic economic growth and frustration with Washington politics are all keeping individual investors cautious.

Tomorrow’s Tape – WSJ


At 8:30 a.m. ET we get the jobs report for October. Economists think the economy grew 100,000 new nonfarm payroll jobs in the month, just about matching the 103,000 jobs added in September. In this way economists are often like Brick Tamland, just looking at the last number they see on the chart and declaring that to be their forecast. They expect the unemployment rate to clock in at 9.1% — again, matching last month’s unemployment rate. These numbers are nowhere close to good.

At 1:00 p.m. Fed Governor Daniel Tarullo speaks.


AES, Ameren, DTE Energy, NextEra Energy, Ventas and Windstream report before the opening bell.