European Outlook:Fear and Dealing With Fear

A recent stock market uptick was essentially a bear market rally,said Michael Woolfolk,PhD,Senior Currency Strategist and Managing Director at Bank Of New York Mellon.Until we get a resolution to the Greek exit question,the market will continue to be defensive.With the Greek election on the 17th,there is likely to be further turmoil in Europe.There's quite a bit of movement from the periphery into the core.The concern is,what's gonna happen to the periphery?The next step is,the fear factor is so great,they start to move out of Germany.The status of the U.S. dollar is unique in the global financial system.The move to cash will be overwhelmingly U.S. dollars.How far are government officials prepared to go in financing the periphery?You're already starting to see some cracks in the willingness of Europe to take care of its own,Dr.Woolfolk observed.Larry Summers,former U.S. Treasury Secretary and President Emeritus of Harvard University,thinks the situation in Europe is very difficult.The single currency is brittle.The risk is in lack of confidence and self-fulfilling fear.A central bank wants to bend over backwards to be reassuring that liquidity is there.It's a kind of bargain between the different actors.The overwhelming imperative is to instill more confidence than exists today,current Harvard professor Larry Summers counseled. Bank of New York Mellon(BK)