Tuesday, December 04, 2007

Credit market dysfunction trumps positive geopolitical news

Seemingly nothing can budge the equity markets off of the singular focus on the challenges of the credit markets. Yesterday's news brought what in another time would have been powerfully significant news on the two geopolitical fronts. The market yawned, and the quaint notion that this market can be shaken outside of its own head was put to rest.

Is this news not worthy of financial markets attention?

First, the U.S. intelligence community in some joint bureaucratic announcement said that Iran halted its nuclear weapons program in 2003. Is that not an incredibly positive turn on this situation. Does it show that Ahmadinejad and his puppet master mullahs are simply unwilling to cede their sovereignty to Western control and are willing to risk confrontation on the point. Is this reminiscent of Saddam Hussein, and his refusal to allow full inspections and show cooperation despite having no traces of chemical or nuclear weapons or production capabilities. Do we now know that the situation with Iran, that has perhaps been building into something serious and real behind the scenes, can be managed through negotiation. This is important news.

Second, Venezuelan voters defeated the Chavez proposals in a referendum that would have more or less given him the opportunity to create a socialist state for life, and one that has already been arming itself to the teeth. The vote was close, Chavez is by no means done, but the fact that this vote actually happened in what must be interpreted as fair elections is an incredible positive, and one that to some extent belies some of the media coverage of that state that we receive here.

The market did not respond. Emerging market equities, naively assumed here to react positively, were down slightly in the aggregate with the only material gain being in Russia where Putin increased his dominance in that country's elections. U.S. equities sold off in the afternoon, a sign that the meaningful money was not swayed in the least. The unfortunate conclusion must be that the current credit market dysfunction is where all attention is being drawn and for good reason.

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