Hell of an October Ahead

So EU is putting on a bigger boot to kick that can. We will see Thursday if Germany agrees to tie the laces for this to happen. I assume it will happen - as the markets are certainly assuming this to be the case - so we buy more time. That, however, is all we buy.

Listen folks, the sovereign debt problems in the EU are not going away in weeks or months, they will take many years to resolve. Kicking the can buys time but it does not buy resolution. Think about it; how many years will the voters and politicians in Germany or France support this - or for that matter the other countries in the EU. This is a union that is hardly unified. They have already had one contentious battle after another holding their union together and supporting each other. All it takes is one throwing in the towel. So you tell me, what are the odds of the sticking together for perhaps the next decade while this works itself out before anyone throws in the towel? What are the odds that voters in Germany, France or even Greece voting back in the folks trying to make this work. I personally am very tired of this hanging over the international economy and cannot imagine having to live with this for years to come. The fatigue of dealing with it will insure folks in the EU will stop dealing with it in time.

Even it you believe the countries will stick together, let's ask ourselves whether it will work even if they do. Greece and the rest of the PIIGS are broke. Severe austerity measures will only make them more broke. Many, many years will pass before they have any real chance of coming out of this. What are the chances of this happening? I think anyone with a brain realizes there will be a haircut and the banks are going to lose at least 50% on Greece. Percentages will vary with other countries. Then the question becomes the extent to which governments and voters in the EU have an appetite to support the financial institutions suffering on these haircuts. Therein lies the real problem as this could be a major issue no one can gauge.

So watching the market rebound this week was a bit interesting for me. Undoubtedly partly due to the end of the quarter and people shuffling their investments, but it seems driven by what the EU is doing, which is short term at best in my book. You may have a different book, but I am sticking with mine for now. I admit this could take many months to play out, but I am still anticipating a very interesting October, very interesting indeed.

And I read an interesting article today on real estate in China taking a dive, developers having issues and banks in China (while enjoying record profits at the moment) having sever problems going forward. Many investors are shying away from them. If this happens, look out.

Disclosures: None.