Hungarian Goulash?

Are the financial markets making progress?

Sometimes it doesn’t seem so. The stock market appears pretty volatile, up 200 points one day and down 300 the next. What are we to think?

One item that’s pretty encouraging, though, is how the markets have responded to the news from Hungary. In May Hungary had an election, and the new government indicated that servicing their debt could be a problem. The Hungarian Forint weakened, and global markets tumbled. At the time, it all seemed pretty silly. The Hungarian economy is pretty small—about 1% the size of the US, or the same as Morocco. And their debt is pretty small as well. But the markets were looking for any excuse to plunge in June and they did.

Yesterday’s news out of Hungary was a lot more serious and the market responded with a big yawn. The talks they’ve been having with the IMF about assistance broke down. But the markets outside of Budapest didn’t even seem to notice, and neither the Forint nor spreads on Hungary’s bonds are any wider than they were in June.

This is what progress looks like. Bad news happens and the markets put it into perspective. Sure some investors will get hurt, but that doesn’t mean that Hungary is going to send the global economy into a tailspin. These news cycles pass like a summer thunderstorm, full of sound and fury and signifying nothing. Let’s hope that any tempest in the Hungarian Forint, isn’t.

Douglas R. Tengdin, CFA
Chief Investment Officer
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