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Europe Tries to Reanimate Dead Tissue


The G-8 comes and goes as the markets march on.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

My fellow scientists and neurosurgeons, ladies and gentlemen. A few short weeks ago, coming from a background, believe me, as conservative and traditionally grounded in scientific fact as any of you, I began an experiment in, incredulous as it may sound, the reanimation of dead tissue.
-- Dr. Fredrick Frankenstein

History is littered with movies where the survival of planet Earth comes down to a few tenuous decisions. War Games,, Austin Powers, The Hunt for Red October, The Day After Tomorrow, and Mars Attacks all come to mind, as do most James Bond movies and-to a lesser extent-the scene in Airplane when Johnny pulls the proverbial plug.

It's pretty freaky-no, downright scary-how life imitates art.

I can't speak to the political will in Germany-I, like most of you, can only read about what's happening on the other side of the world-but it appears that the only one outcome can save the eurozone monster if and when Greece steps away-and it's not love.

Eurobonds-a nasty word in Germany these days for those with a memory of past generations-has been bandied about for six months as the latest iteration of the "let's kick the can down the road to future generations." While it's far from a panacea-the issues abroad, much like our stateside conundrum-are structural in nature, be it unemployment, housing and debt at untenable levels. Something needs to be done, and it needs to be done soon.

The issue, of course, isn't the impact of and on Greece itself; it's the counter-party risk and potential contagion to the peripheral region, not to mention the psychological damage-and precedent- it would set that would endanger to topple the Portuguese, Italian, Irish and Spanish dominos.

We wrote A Five-Step Guide to Contagion more than two years ago and it's as apt now, if not more so, as it was then. The question remains-how can policymakers snuff out the fuse before we embark on a full-fledged sovereign sequel to the first phase of the financial crisis?

Thus far, in her most stoic poker face, German Chancellor Angela Merkel, fresh from the G-8, has ruled out any 'solution' that would require measures that would raise debt. That's the fly in the newly discussed ointment to 'marry austerity measures with pro-growth initiatives,' which we postured late last week in The Heart of the Matter (readers curious why I've been somewhat low-profile of late may wanna sneak a peek at that).

And then there's China, which is not-so-quietly posturing that its about to become entirely more accommodative. Bulls who are pinning their hopes on this Communist kick-save would be smart to remember the wise words of John Succo, as channeled in my 2010 missive, The Rise of the East and the Downgrade of the West.

"This is but one ingredient in an increasingly complex global stew that's been brewing for quite some time. Old school Minyanville readers will hearken back to the days of yore, when Professor John Succo offered the following foresight in 2004. (See: Subterfuge.)

And I quote:

The Federal Reserve has assured the US public that our debt is not too high and we should not be concerned that so much of it is owned by foreigners.

These words are inherently disingenuous not because there is certainty they are not telling the truth, but because there is at least a chance that they are wrong and the consequences of this error are immense. And they know that there is at least a chance that they are wrong.

In order for us to be assured and not concerned, we would have to be certain that the Chinese will always behave in the best interests of the US. I contend that you have to at least consider that they will not. I contend that the Chinese will always act in their best interests and not necessarily ours.

Right now they are acting in our best interest by using their dollars from trade to buy our treasuries to keep our interest rates low, but that is only because right now their interests align with ours. If they ever deviate, I think we can be certain that they will go their own path.

But what if it is even worse and they actually have a plan for their benefit at the detriment of ours? This is at least a possibility, the consequences of which are significant. Our government has left us exposed to this possibility.

This isn't some Jack Bauer conspiracy where Ben Bernanke was abducted and tortured for seven months until such time he broke. No, it's entirely more sinister than that; we've been willing participants in feeding the beast of global imbalances for years on end, hoping against hope they'll magically reverse.

Random Thoughts:
  • I am psyched to be back in Minyanville headquarters following a few weeks of horrific scares. My instructions-and yes, I will gladly listen to these guidelines-are to limit my time at MVHQ to a few hours per day this week. My goal is to make it to lunch, head home and finish up the day from there. I can't very well ignore doctors-or my fiancee Jamie's-orders, given what they've done for me, nor do I have any intention to do so.
  • Green futures have been a death knell for the market these last few weeks. I know, China this, China that-but expect a press lower, at the very least. S&P 1300 remains new-found resistance and active risk-managers can set their stops above those levels (note: this stair-step approach has now captured 100 S&P handles in two short weeks).
  • The Global Market Trading Strategy remains in play.
  • DAX 6500 remains overhead and as long as that's the case, the German index "works" to DAX 5800. Technical analysis is but one of four primary metrics but it is a terrific context with which to measure risk.
  • I bought some Facebook (FB) at $38.01 on Friday (leaning against the syndicate bid) and sold 40% at $40 and the remaining $60% at 41. Just trading.
  • IF this stock trades with a $20-handle at a point, I will likely put some away in my kid's long-term portfolio. Watch Morgan Stanley (MS) as a peripheral play, as they are likely lugging a lot, but have (more likely than not) shorted QQQ or Zynga (ZNGA) against it (I know nothing; just hypothesizing here).
  • Spain is now trading at levels below the March 2009 lows. While it is by far the most oversold European proxy, the sharpest moves tend to occur from oversold (or overbought) levels.
  • Other stocks I wanna put away for the long haul at the right price? LinkedIn (LNKD) and Twitter, if and when.
  • Hit 'em hard today and remember that profitability begins within!

Twitter: @todd_harrison

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