More Reflections On The ECB Greek Bailout

The big news in US equity markets this week continues to be the weekend announcement of the ECB bailout of Greece and, prospectively, Spain and Portugal.

The US pre-market open S&P futures were down to 1141 at one point this morning, from yesterday's close of nearly 1160. As of 10AM, the S&P index is around 1154, still down slightly.

Already, before the open of the US equity markets, pundits were warning of the potential risks and negative consequences, for equities, of the ECB's bailout.

One, of course, is that the Euro isn't a reserve currency. Thus, the relatively benign effects, so far, on the dollar, of the late-2008 massive printing and borrowing of dollars, may not accrue to the Euro or the Eurozone economies.

Second, the austerity measures called for in the bailout will probably result in real economic slowing for the Eurozone economies. That isn't good for short term GDP growth and, by extension, will affect those companies doing much business there.

Third, there's some non-trivial political uncertainty accompanying the ECB actions. The British still don't know the shape of their new government, in the wake of Brown's defeat. And Angela Merkel's party lost an important state election, which will result in her party's loss of control of Germany's upper legislative chamber. Simply put, it's too early to tell if most Germans really approve of using their economic strength and savings to pay off the debts of their relatively less hard-working and less prudent Greek Euro-neighbors.

And Spain is still to come.

All of which means that, after the predictable one-day jump in equities, the longer-term consequences of the ECB action may be quite different.

According to my measures, equity market volatility has not yet abated, and returns are by no means assuredly back to a long, steady march upwards. Seeing just what sort of market dynamics predominate in the days and weeks ahead is still unclear.