Tail Between My Legs

I have long thought Greece to be an important issue. While Greece is small, the European banking system is thinly capitalized. On  a mark to market basis the entire European banking system is likely insolvent.  If Greece defaults losses would have to be taken and the dominoes would start to fall. Eventually, the powers that be would step in but there would likely be some pain before we reach that point.

I thought we could avoid the European debt issue for this week  as not much was on the schedule in Europe for this week. Unfortunately the market chooses the point of recognition for an issue and that could be at any time.

Barring contagion from Greece the market should rally as we can now add panic to the mix of positives. Unfortunately, we cannot rule out contagion. I am not willing to take that risk, except with stocks that I believe to be cheap enough to hold through a recession. That is the reason I sold my trading longs, but held onto my core longs. Have a good night.

6 comments:

Anonymous said...

At last the VIX finally started a move. Probably worth watching.

Tsachy Mishal said...

Yes. Hard to argue that we did not see panic today.

frank revelo said...

Panic and contagion are strong terms. The market has been pricey for a long time now, ever since it went over 1100 for the SP500. In part, that priciness is justified by QEII and the prospect of QEIII, plus the desire for an inflation hedge and lack of alternatives. But partly it's just performance anxiety by money managers. They know what they are buying is expensive, but what else can they do if everyone else is buying and riding the market up? Now they have to get out so as to avoid riding the market down. Not so much panic as the natural result of a world in which capital allocation, which used to be the primary role of the stock market, has been reduced to being the by-product of a casino where the game is pulling the trigger right before the other guy pulls the trigger, not too soon and not too late and who cares about fundamentals. I've been in bonds since April of last year and I didn't like watching stocks go up since then, nor did I like the dip in my bonds earlier this year. But I don't have to answer to anyone and am otherwise under no pressure to perform. I hate to think of the stomaches and client phone calls for money managers who tried to do what I did.

frank revelo said...

To me, panic is when people start selling stuff at unreasonably low prices (or buying at unreasonably high prices in a buyer's panic). Fear takes over and overwhelms reason. Those who can maintain their calm in a panic can pick up bargains. Panic implies a v-shaped bottom. I don't see sp500 at 1265 as unreasonably low or a bargain by any means. You're the expert on short-term trading, so I'll defer to you as to whether this will turn out to be short-term v-bottom. I certainly don't think this is anywhere close to a long-term bottom, v-shaped or otherwise.

Anonymous said...

i'm in the camp that we don't panic yet and rally into the fall.  there, you could see some real stuff hit the fan.

Anonymous said...

an 8% drop from year highs over 6 weeks is hardly a panic.  feels more like an obligatory sell in may correction we see in most bulls.  falling 8% feels like a panic because the market has been on heroine for a year.