Greece Lightning in a Bottle!?!
While Greece is a symptom, the actual problem extends far beyond their borders.
Relax Danny Zuko--you've already got your hands full and besides, this ain't no day at the beach!
The Greased Lightning we're referring to is the perceived rescue plan for the indebted Mediterranean islands. We spoke about the "nose scrunch headline risk" yesterday, asking if our aforementioned contagion catalyst had become a tad too obvious. Shortly thereafter, but before the markets opened, Pepe Depew shared a unique perspective on sovereign speculation when he said:
"Taking a look this morning at daily and weekly charts of a handful of sovereign 5-year CDS, note TD Combo sell signals for Greece, Portugal and Spain on both the daily and weekly charts. This would suggest exhaustion is in place and spreads have, for now, widened as much as one could expect.
"Interestingly, this accompanies speculation that Greece is poised to very soon get European help with respect to its budget deficit."
Despite the intra-day German Jedi Mind Trick, the tape held higher ground yesterday on speculation that a rescue plan is in the works. It most likely is and that, of course, could offer a respite from the supply, at least for a spell. Should a package pass, there are two primary transfer risks that should be on ye radar.
The first are the unintended consequences. Way back when the first iteration of the crisis arrived, we spoke of two scenarios. The first was debt destruction, resulting in a higher dollar, lower asset classes and an eventual, albeit painful, path towards true globalization.
The analogy? Everything they said the internet was going to be proved true, but not before the technology crash. Globalization will also prove true, but not without debt destruction.
The second scenario is an all too familiar movie currently playing for taxpayers across the country. Instead of debt destruction, simply shift risk from one perception to another and for good measure, encourage more debt, effectively giving the drunk another drink with hopes he or she doesn't wake up.
That points our elevator in an entirely different direction, with stops at sporting goods, women's lingerie, societal acrimony, social unrest and geopolitical strife. Any German, EU or IMF assistance will likely be contingent on Austerity Initiatives that, if passed, will light the fuse to an already combustible socioeconomic spectrum.
As I discussed this morning, while Greece is a symptom, the actual problem extends far beyond their borders. Just as our government faced issues of moral hazard--who shall live and who shall die--the EU and IMF will likely be faced with similar choices as it pertains to Portugal, Iceland, Spain and other struggling sovereign stress cases.
Time and price are the arbiters of our financial fate and I'm not smart enough to map the "when," but I'm hopeful that illuminating the "what" helps Minyans in their proactive preparedness of what's to come. In the meantime, I continue to sell blips, buy dips, trade around a short bias and define my risk on the other side of S&P 1085.
Tell me about it Stud!
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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