AND NOW, OVER TO YOU

I think that's pretty much what the Chairman said this morning, the "you" being the political players in the game. Giving voice to what most of us have already figured out Mr. Bernanke, while leaving the door somewhat open to further monetary action, stated quite clearly that if we as a nation are to move forward the fiscal house must be put in order and that requires political agreement through compromise or political dominance. Yea. It was reluctant, but it was nevertheless a recognition that this disease cannot be treated with aspirine; the symptoms might be relieved but a cure will not be forthcoming. It was perhaps the message that needed to be delivered. Do not look to us any more, look unto yourselves. I hope the pols were listening.

 The stock market seemed to take it surprisingly well perhaps because Mr. Bernanke also stated his belief that the economy was doing reasonably well although not as well as had been expected. Where he got that notion is beyond me as the GDP numbers spoken of today were not good at all and unemployment claims nudged up slightly. Next week is a big one for data and the picture about the year-end will become a bit clearer. I don't think we are going to like what we see as out here in the fly-over zone with the exception of the corn crop and the prices for the same no one is jumping up and down with joy although I do sense a somewhat more relaxed--or is it resigned--attitude among the good folk. The banking business stinks with growing resentment about what last year's new slew of regulation and the Fed's "give it away" policy has done to community banks. The big guys get it for free and the little guys have to pay for it. Not good for First Mom & Pop. Getting outbid as well on what business is out there, too. An almost perfect example of being careful for what one wishes. But, we will survive and hopefully the pols will try to refrain from making fools of themselves once again although I wouldn't bet the family farm on that.

 As for survival, that is becoming a growing concern in Euroland. I'm sure you have all read of the bright idea the Finns have regading the nature of terms surrounding the Stabilization Fund whose increase has still gone nowhere. For those that haven't, the Finns believe--especially in the case of Greece--any loans should be made on a secured basis and, indeed, have already set that idea in motion with a bilateral extention of credit. If for Greece, then of course for everyone else the argument goes and while appealing from the standpoint of an old credit hand it appears the majority of the Euros have taken the position that this approach is simply not on. To an extent it's all moot at this point because the money has to come from Germany if it comes from anywhere but so far that, too, is not on from Germany's standpoint. And so it goes. Now all of this is going on with the background of the mysterious Greek repayment of this week which, unless I'm wrong (again) came as the result of the Central Bank of Greece (yes, they still have individual ones) doing a fiddle with someone---perhaps the ECB, perhaps ANOTHER Central Bank in the region on terms and in a manner unknown. The criticality of the situation is highlighted by goings-on in the dark like this one and the situation is very critical indeed. I am still of the mind that the Greeks will simply say it's not worth it and walk away. As for collateral, how do hold a Temple or Santorini in a vault somewhere on behalf of creditors? Mundo Bizzaro. And yet I am told that the Finnish approach is gaining supporters which is simply a gentlemanly way to say "go to hell" when the collection plate is passed.

 Finally, to make the whole thing worse, the DAX got crushed this week on financial rumors and the very real concern that the German economy is sliding into recession. If indeed these economic concerns turn into reality the fall-out will be far and wide not only in Euroland but stretching across the pond as well. We are all "leased out" to quote John of Gaunt yet again and substantive, structural adjustment appears to me to be the only real solution. It will take a long time and it will be very painful but it must be done...especially in Euroland because the looming alternative is, I'm afraid, the failure of the noble experiment and that will be far worse. Events and policies here and there have created the perfect storm...far more perfect than the one heading up the east coast as I write.

 I'm off until after Labor day; back on the 6th. Hopefully we hang together until then, and until then enjoy the rest of the summer!

 See you in September.