Fate has been a cruel taskmaster lately. For more than two years, stocks have stumbled through a broad trading range as the initial excitement over the end of the recession was replaced by alternating waves of greed and fear. All the while stocks, as represented by the NYSE Composite Index ($NYA.X), haven't gone anywhere.

For the better part of October, it looked as if a turnaround was at hand. The economic fundamentals were improving, corporate earnings were growing steadily, and a comprehensive solution to the eurozone crisis was being hammered out (or so it seemed). The NYSE Composite gained nearly 23% in just four weeks. Confidence was rising. Money was flooding into the stock market. Even the housing market was showing signs of life.

The pieces were in place for a classic Santa Claus rally, lifting everyone's spirits and giving us hope that maybe, just maybe, the market could push to new recovery highs and the economy would break out of its jobless funk in the new year.

Then, it all went wrong.

Image: Anthony Mirhaydari

Anthony Mirhaydari

A belated boo the day after Halloween

The market turned down on Monday, Halloween, as the market realized Greece wasn't quite settled yet.

But the real blow came Tuesday, when Greek Prime Minister George Papandreou dropped a load of napalm on the revelry. He would let the people of Greece decide what to do by holding a referendum on the latest bailout plan by January. The question would be simple: Do we reject or accept Europe's new plan for us? But before that, he would hold a government confidence vote later this week -- a vote that, if lost, could topple the government.

This pull of the string is unraveling a seam along what was always the eurozone plan's point of vulnerability: a lack of political support from Greek citizens unwilling or unable to bear the burden of their national debt.

Just days after an against-the-odds victory for European Union leaders in Brussels, Belgium, and without any forewarning to the French, Germans or even other members of the Greek leadership, Papandreou launched a risky gambit.

Shaken and stirred

That gambit might steal not just from the Santa Claus rally here at home, but also from the Christmas spirit of retail confidence needed to fuel the U.S. economy through the fourth quarter. That's because the eurozone is a key export market for U.S. products, worth nearly $138 billion annually.

More important, the fallout from the move, which I'll get into later, will shock vulnerable consumer and business confidence.

That last point is key. As I've mentioned frequently over the past few months, confidence has been the fulcrum on which the market and the economy have hinged.

During the U.S. debt ceiling/credit downgrade wipeout back in August, executives and investors both swore to high heaven that the sky was falling, but the hard economic data held up remarkably well with the final sales component of gross domestic product putting in its second-best performance of the recovery to date in the third quarter.

But I don't think the economy is strong enough to weather another shock. And that's what makes this week's move by the Greeks so scary.

So why did Papandreou do it?

Fed up with popular anger toward his government's efforts, a dwindling ruling majority in parliament (down to 151 members out of 300 at last count) and an intransigent opposition party, Papandreou needed to do something dramatic. His brinkmanship, according to senior members of his party, was done in the hopes of keeping his government together for a few more months while the bailout arrangements are fleshed out and completed.

Instead, he unleashed chaos.

Power plays are under way in Athens. Papandreou's finance minister, deputy prime minister and party heavyweight Evangelos Venizelos, criticized the decision and distanced himself from it by checking into a private clinic with a mysterious stomach ailment. From his hospital bed, Venizelos telephoned his counterpart in Germany as well as the head of Germany's Deutsche Bank (DB, news), according to media reports.

The problem is a majority of Greek citizens view the new bailout plan negatively and are fed up with German/French restraint on national sovereignty, as well as the pain of massive protests, work stoppages, new taxes and public-sector layoffs at home.

After years of living well (thanks to government waste, an inefficient labor market, tax fraud and cheap borrowed funds -- enabled by the country's eurozone membership and the currency's implicit German backing), the Greeks don't like their new austere reality and want it to end. Many, especially the young and educated, are simply leaving.

But a "no" vote, would result in a Greek bankruptcy, according to Euro Group head Jean-Claude Juncker, who is also prime minister of Luxembourg.