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This morning’s Barrons had a good piece by Michael Santoli discussing what he refers to as a market “held hostage” by Europe.  And it very much is.  Mr. Santoli cites the bull-bear debate surrounding this environment:

“The crux of the bull-bear debate today, then, is whether the market’s perseverance is best compared, in boxing terms, to a resolute fighter with an iron jaw or a punch-drunk tomato can without enough sense to go down. This can be a fine and imprecise distinction, and the first condition can morph into the second with one blow too many. But when a market refuses so many perfectly good excuses to collapse for good, its resilience probably deserves the benefit of the doubt.

As put on Friday by veteran market strategist Vince Farrell of Ticonderoga Securities:

“The market seems to handle whatever [is] thrown its way. The Greeks tried to take the system down, but it looks like, as the Spartans of old, they are being carried back on their shields. The Italians are hoping the full [Mario] Monti will pull a bunch of technocrats together and muddle through. U.S. economic news, on balance, continues to improve. Inflation came off the bubble in China and some are guessing the government will ease [interest rates] a bit by the end of the year.”

So, is the market resilient or complacent?  I don’t think it’s either.  For once, the market is acting quite rationally.  The concern in Europe is that the EMU’s leaders will let everything collapse.  This worst case scenario is incredibly frightening from the market’s perspective as it has the potential to cause a 2008 repeat.  So, when the news headlines appear to hint at Europe falling apart the market rightfully craters.  And when the worst case scenario appears to be off the table the market rallies back.  Despite the market’s fairly rational response so far, we are likely to remain hostage to the Euro crisis until a real fix has been implemented.   Don’t hold your breath on that….

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