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George Liu
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George is currently a Managing Director at Lion Fund. He has written for Seeking Alpha, The Motley Fool,, Psychology Today and his works have been featured on Seeking Alpha's Wall Street Breakfast, MSN Money, Yahoo! Finance, AOL DailyFinance, CNNMoney, CNBC, MarketWatch, TheStreet,... More
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  • It's Not Irrational Exuberance; It's Uncontrolled Craziness 0 comments
    Jan 16, 2012 4:50 PM | about stocks: JPM, GREK, EUFN, VGK, FEU, FXE, FEZ, UPV

    "There's no one in charge of the global financial system ... It's crazy."

    Jamie Dimon, head of JPMorgan Chase & Co. (NYSE:JPM), made this statement during today's mediocre earnings conference calls for JPM. And ironically, it was one of the relatively positive highlights of the conference, which featured a 23% drop in earnings and a 17% decrease in revenue (yoy) for JPMorgan & Chase. However, this statement does bring to light two important issues that have recently dominated headlines: those dang Europeans and Mitt Romney.

    Today, S&P downgraded France's coveted AAA rating to AA. Then the S&P went on a roll, cutting the credit ratings of Italy, Spain, Portugal, and Cyprus by 2 notches and slashing the ratings of Austria, Malta, Slovakia, and Slovenia by one notch. France, Italy, Spain, Ireland, Austria, Belgium, Portugal, the Netherlands, Finland, Slovenia, Cyprus, and Estonia were further assigned a 1/3 chance of being assigned a lower rating through 2013. Moreover, the European Financial Stability Facility (EFSF) is also facing a threat of a credit downgrade from its current rating of AAA; seeing as how a majority of the EFSF's capital comes from non-AAA nations, the downgrade is a very likely possibility. France's downgrade will also factor in, as it is the second-largest contributor to this bailout fund. The S&P will reach a final conclusion on the creditworthiness of the EFSF next week. Elsewhere in the Eurozone, negotiations in Greece to persuade investors to take a voluntary cut on their Greek bond holdings neared collapse. Without a deal with creditors asking them to voluntarily write down 50 percent of the notional value of their bond holdings, Greece is likely to default around March 20, as international lenders won't bail out Greece a second time. These developments have resulted in the Euro falling to a 17-month low today. Alas, the S&P's cuts seem to have pulled the market back down to reality. For a few weeks now the market had been largely buoyed by moderately positive news coming from Europe. Italy and Spain had recently completed successful bond auctions, with Italy raising more than $6 billion. This reemergence of uncertainty in Europe shows that despite the best efforts of the Eurozone, the European sovereign debt crisis still continues down its path of "uncontrolled craziness."

    Mitt Romney has based his entire campaign on his ability to get the U.S. economy running, which in turn is based almost exclusively on one single facet of his accomplishments: he has worked in the "private sector." Yet, the latest developments in the world economy should cast doubt on the ability of Mr. Romney to live up to his hefty promise; the supposed correlation between "private sector" experience and significant economic improvement, especially in this "uncontrolled craziness" is proving to be increasingly chimerical. After all, countless economists, businessmen, and leaders have tried to think of and implement methods to stem the European sovereign debt crisis, yet currently we are as mired in this crisis as ever before. Greece's prime minister, Lucas Papademos, was able to succeed George Papandreou for the position based solely on the fact that he was a trained economist, banker, and a former governor of the Greek central bank. Yet, Greece continues to struggle and its chances of defaulting are growing increasingly larger as negotiations with major Greek creditors such as York Capital and Och Ziff still have not resulted in constructive measures. Granted, Mitt Romney won't be inheriting an economic state nearly as worse as the one Papademos inherited, but his "private sector" experience will not stand an inkling of chance in this brutal macroeconomic climate. This is noted by esteemed economist Paul Krugman, who, in his latest op-ed, has stated that "America isn't a corporation." Moreover, in light of the Federal Reserve's release of a transcript of a 2006 meeting, which occurred at the eve of the Great Recession, there seems to be an increasing disconnect between economic education and economic adeptness. Some of our foremost economic thinkers, from Geithner to Greenspan, laughed off economic troubles in this Federal Reserve meeting and predicted "clear skies ahead." These were people whose jobs were to keep the economy chugging, people who had "private sector" experience and dedicated their lives to studying the economy; yet they still failed. There is no substance behind Mr. Romney's milking of his "private sector" experience for political points, which in of itself is logically fallacious; simply because you worked in the private sector of the economy doesn't result in your obtaining of a prescient foresight of the economy and a keen understanding of its intricate mechanisms. Simply because you hired people at your old job doesn't mean you will be able to decrease the employment rate of an entire nation.

    In this day and age of turbulence in the world economy, Mr. Dimon's statement is fittingly relevant. In the aftermath of "irrational exuberance," the world is still reeling from the effects of the Great Recession, particularly a continued manifestation of it in the form of the European sovereign debt crisis. This has led to "uncontrolled craziness" that cannot simply be stopped by "private sector" experience. Of course, Mr. Romney is first and foremost running a political campaign platform; these platforms don't have to be logical, they simply have to appeal to the voter. His bold claims of making 100k+ jobs in the private sector (which use a completely twisted and fallacious reasoning) are made to appeal to voters, not to rational thinking. Ironically, this prioritizing of politics results in the portrayal of him as a politician more than a man of the private sector.

    Themes: Economy Stocks: JPM, GREK, EUFN, VGK, FEU, FXE, FEZ, UPV
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