Europe stops fiddling while Greece burns!

This post is a combination of several other past blog topics. It will cover economics and the stock market.

In March, I discussed the economic crisis in Greece in the post The slippery slope of Greece. In the post, four options to Greece's crisis were presented:

Option 1: EU bails out Greece with emergency loans at low rates and Greece implements austerity budget spending.
Results: If the money comes in from the other EU members, it will give Greece a little breathing room to fix problems. This requires the most powerful EU member's, Germany, blessing. If the money does show, I rather doubt Greece will do more than superficial changes to government spending. Greece has cheated on its obligations in the past, thus, why should it change now? EU members know this. The cash influx would last about 6 months and nothing structurally would have changed. Greece would be where it started. Even if the austerity measures were fully implemented, Greeks make is a national past time to protest. The economy would face a decline in productivity resulting in further economic problems.

Option 2: Bailout from the US Federal Reserve in low rate loans
Results: Same as in option 1. The advantage of this scenario is it could be kept secret. For Europeans, it is the best option since Europe do not have to pay. American taxpayers get the bill when option 4 below occurs.

Option 3: International Monetary Fund (IMF) steps in and gives emergency loans to Greece.
Results: Same as option 1 again. Two negative aspects loom here. One, I believe this would break terms of the EU. Other EU states would retaliate, dumping on Greece in various ways. Greece might get thrown out of the EU. Two, the spending restrictions the IMF imposes during its assistance programs are harsh. Greece will enter into an economic downward spiral as socialist union workers shut the country down from mass protests.

Option 4: Greece defaults on sovereign debt
Results: It is impossible to determine what will occur after the actual fact. Greece would enter into a severe depression though. The key is membership within the EU. Will it remain a full or partial EU member? Will it keep the euro as a currency? I am guessing the IMF would step in here and impose their will. Greece would have to accept a bitter pill.

It appears as if a variation of Option 1 won. The ECB announced last night along with aid from the IMF a $955 billion rescue fund for the entirety of the EU states dependent upon the Euro. The plan is bailing out all of Europe! The intention of the rescue was to defend the value of the Euro. Really, the plan is nothing more than printing money and providing it to banks across Europe. In the long term, it is going to devalue the Euro even further. It does not directly address the crisis in Europe and especially Greece, too much debt.


In two previous posts, Markets and psychology along with Market observations, I present Elliot Wave Theory and how equity markets are driven by investor sentiment. It is time for a Dr. Coffee's Market Update.

In February, I was predicting that we had begun Primary Wave 3, AKA the Ponzi wave. The market had a mind of its own and recovered after the sell off in January and February. It continued on the ever appreciating march to the moon. Primary Wave 2 had not yet finished and had me fooled into a sudden crash as expected in Primary 3.

Well, things have changed. The sudden drop and high volume accompanied with the sell off starting on April 27 is more characteristic of a 3rd wave. Last Thursday had the Dow Jones Industrial Average briefly drop almost a 1000 points! Today, after the European bailout was announced, all of the US indexes shot up over 4%. This is typical of a bear market rally and indicates that Primary 3 has launched. I believe this is where we are at within the wave structure:
Cycle 3 of 5 (Primary wave 3)
Intermediate 1 of 5
Minor 2 of 5

If this is true, expect significant downside to the US stock market. If not, the market may fool me again!! I reserve the right to be wrong.