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Greece and the Sovereign Soup Are Getting Hotter


Earnings to the left, bailouts to the right.

The final fifth of our freaky week is upon us as we weigh the fray from around the world. While overnight earnings dominated the newswires -- watch Amazon (AMZN) and Microsoft (MSFT) for their reaction to news -- lurking concerns continue to creep into the collective conscious of mainstream investors.

From Aegean bailouts and social unrest (the next phase of the tricky trifecta is upon us) to two-sided regulatory risk and historic accusations of financial fraud (part legal, part political), the mindshare of the marketplace is most certainly crowded. All the while social mood is shifting and class wars are percolating, as the rich get richer and the poor get sorer.

As I wrote earlier in the week, what were once parallel, coexistent paths of mutual -- albeit disproportionate -- prosperity between Wall Street and Main Street has morphed into a V-Shaped recovery of a different kind, with the great divide growing wider with each passing day. The rising tide of the markets was perhaps intended to lift all boats, but it's caused many to count life-preservers as they question the captain.

The Chinese have a proverb, "May you live in interesting times." Our grandchildren will study these last ten years -- and the next ten years -- as the most meaningfully profound period in the history of financial markets. It hasn't been easy, nor does it promise to be, but take me at my word; those who emerge on the other side of this ride will define the next generation business landscape. We simply have to get there, one step at a time and together as one.

Some Random Thoughts:

  • We offered throughout the last few sessions that the flattish breadth during downside probes, coupled with an underlying bid in the financials, supported the bovine defense of S&P 1200.

  • Hoofy walked the line to defend his technical turf while channeling Edwin Moses when hurdles arose. Watch those "tells" intraday, along with the aforementioned reaction to news. S&P 1175 and 1150 will serve as the next support levels. S&P 1230 is a level circled on some snazzy radars.

  • We've spoken about the sovereign sequel for a few months -- newbie Minyans, please give this a read -- but the reaction to news, or lack thereof, has been more telling than the news itself. That's the thing about financial markets, that price is the ultimate arbiter of variant views in terms of what matters and, more importantly, when.

  • Wednesday night, Greek bond yields surged to the highest level since 1998 as pressure built on the government to accept an EU bailout despite mounting social unrest. Llast night, they officially called for the lifeline.

  • We spoke yesterday on our real-time Buzz & Banter about how sovereign spreads saw out-sized (bearish) widening on Wednesday night, with Greece popping (an additional) 17%, Ireland 15%, Portugal 13%, and Spain, Italy, Korea, Finland, and Malaysia close behind.

  • Last night, following the "Yes, please" from the Greek government, spreads narrowed on a relative basis but remain "skeptical, at best" as we ready for the biggest test yet for the European Union. It's like a World Cup of Salty Sovereign Soup; be careful, it's hot -- and getting hotter.

  • This is one of the ten primary reasons I believe this is a cyclical bull nestled within a secular bear. That doesn't make it right, it simply makes it honest.

  • See both sides! The corporate bond market continues to suggest a window of upside opportunity as risk is pushed out on the time continuum (companies bought themselves time despite cumulative risk). Earnings on the aggregate have been "better," which must be respected through the lens of our four primary metrics, but are most certainly discounted at some level by the rally into these events.

  • This is going to be a FANTASTIC event for the Jazz Foundation of America at the famed Apollo Theater on Thursday, May 20th. Area Minyans with toe-tapping rhythm are most certainly encouraged to join us for this wonderful cause!

  • Maybe I'll get Crash some Neuticals to prop up his confidence after the dreaded snip and clip?

  • Keep an eye on China. It is seemingly "churning" after back-testing the broken uptrend that's been in place since the beginning of 2009. I haven't heard much about it in the mainstream media but perhaps that's because I have my television muted most of the day.

    Click to enlarge

  • Minyanville officially welcomes Professor David Stockman, former budget director for the Reagan administration. His five-part series, Did Washington Save the Economy?, is a worthy read for ye faithful looking for experienced insight.

  • Do you think this social media thing will catch on?

  • If Hoofy was dressed to impress in his "party green," is Goldman (GS) hanging around his neck?

  • Sorta like this?

  • We noted the stealth traction in the homies yesterday. Not because I'm sweating O-Dog -- America's worst nightmare -- because they were the first sector that lead us lower. Hoofy was quick to note the technically constructive rounding bottom and is being rewarded today on the heels of the tax-credit fueled jump in new home sales. Pulte Homes (PHM), Lennar (LEN), and Toll Brothers (TOL) are leading the upside charge.

    Click to enlarge

  • Minyan Steve offers, "Toddo, there is no class war. The upper class already won, as evidenced by this chart." We've touched on this disparity for years. The risk, I suppose, is that we're witnessing a passing battle in a much broader war.

  • How many Abaci are lurking lawsuits waiting to happen?

  • Back in March, 2008, when men were men, sheep were nervous and Bear Stearns imploded, we spoke of the "four primary points" of a trading turn. I was reminded of that as I dug up the current analyst "standing" at Goldman Sachs (76% rate the stock a buy, 14% a hold and nobody, nada one, has a sell rating).

  • I'll be attending the Milken Institute Global Conference in Los Angeles Sunday through Thursday. Sitting in front of my eight screens all day is good for intraday commentary; getting out of the office with a collection of global thought leaders is good for business and will benefit to forward our community. Thanks, in advance, for the gratitude of latitude.

  • Good luck Minyans. Hiit 'em hard today and best of luck for the better part of next week. I'm hopping over to the Buzz & Banter, where I scribe vibe in real-time all day. Hope to see you there!

  • May peace be with you.


Position in S&P
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