Archive for the 'Europe' Category



Did You Hear the One About the Bull… China, Europe and Global Growth Stocks

There is an oft told, though not particularly amusing story about an old bull and his son who stood atop a hill glancing down at a herd of attractive heifers. Exercising his fatherly duties, the newly divorced elder bull cautioned the youngster about charging down the steep slope to, let’s politely say, curry favor with the cows that grazed below.

“Com’on, Dad. Let’s go get ’em.”

“Easy there, boy,” the father cautioned, “it’s not always good to move too far too fast. Just ask the hare that lives in that hole next door to the barn.”

“I guess you’re right,” the son responded. “Slow seems to win an awful lot.”

“Slow is not the same thing as deliberate. Deliberate is what I’m after.” “But what about the Roadrunner, Pops?” the young stud inquired, “That darn bird seems to win every time and he looks like he’s havin’ an awful lot of fun racing around.”

“You may have a point there, kid,” came the response as the father looked below, a smile forming on his lip, a twinkle brightening his dark brown eyes. “Let’s deliberately run down there and have a good old time. Don’t know what I was worried about.”

Setting aside his discipline and years of experience, the old bull was drawn in by visions of what could be if all went right. He galloped down the hill, pausing ever so briefly to enjoy himself along the way. But all good things eventually come to an end and often the easier it seems in the beginning morphs into greater difficulties at the end. Well, it didn’t end well that day for the elder bull who would eventually keel over, ending up as a set of loafers and matching billfold. In the interim, though, he sure had fun.

As with the bovines portrayed above, it’s been a quick and happy romp for the Wall Street bulls, of which I have been one. However, I have no intention of keeling over while hanging on for one more conquest. To some, the bull market is showing signs of tiring while to others, the indices will continue to move higher. Me – well, I have ratcheted down my exposure to a slight positive bias to the market – short global growth, long defensive. I am positioned this way because I see the cows at the bottom of the hill looking decidedly less attractive in the second half of the year when the slowdown in Europe and China become much more evident. That will be when the austerity measures come full measure and the realization hits that Germany alone can’t drive the EU economy but, rather, is itself dependent upon an increasingly inward looking and slowing China as well as its EU brethren who were the direct beneficiaries of Deutschland’s indirect largess via the troika. It is also when we will revisit Greece, if not sooner, and possibly Portugal. So without EU governments being able to stimulate their own economies through major public works projects; without their banks, despite the LTRO, having enough balance sheet to lend (or choosing instead to make easier money through the risk-less carry trade); without the ECB actually being able to print money; and with China’s property bubble gushing air instead of hissing, the headwinds will likely cause a downdraft in the averages.

China lowering their GDP target doesn’t bother me that much for a few reasons. First of all, it wasn’t a surprise – in fact, I mentioned it last week. No great vision on my part since it was the consensus estimate. Even more supportive of my fortune telling acumen, the government had leaked major portions of the statement. The bears fear not though for China has always outperformed their targets and is perhaps setting the bar low for the new comrades coming into office. And doesn’t it matter that 7.5% growth, which may in fact turn out to be 8% if history is a guide, will equate to just slightly less than the same amount of growth as in 2011 owing to a larger base from which to measure the change? (I actually find it somewhat amusing that much of what I read from the Street believes that China will continue to grow at 9-10% despite a clear trend lower.) But the action will turn inward as China grows the domestic economy through consumption rather than exports. This, to me, means less fueling of the global economy. And, of course, slower growth is, at the end of the day, slower growth. I am still not convinced China will have a soft landing – far from it. The property bubble is continuing to deflate and the central government still has little interest, it appears, in bailing out the Rolex wearing, Ferrari driving, developers. This has been made extremely clear in the beating back of measures enacted by local governments, including Wuhu and Shanghai, to foster a recovery in property prices through employing mechanisms such as relaxing credit or allowing the purchase of a second home. Not least of all, let’s not forget that some important economic indicators in China are showing contraction or multi-year weakness. There is the school of thought, of which I am not a student, that believes we shouldn’t worry about China and Europe since U.S. GDP is not overly reliant upon either Europe, 2% of total U.S. GDP, or China, 0.6% of GDP, but given that our economic revival is not particularly robust, any potential hit to growth has to be regarded seriously. And it is the strengthening domestic economy, abetted by perhaps misplaced optimism on the global economy that overshadows the current weakness abroad.

Not a lot has changed in my favorite longs and shorts with the exception of initiating a short position in U.S. bonds but I will leave that story for another note. I still prefer domestic focused companies that provide downside protection through yield or have branded franchises with a strong IP advantage or value proposition: VZ, QCOM, WLP, HK and CSC, a very interesting value name with a new CEO, low valuation and strong prospects for a turnaround. JPM is very attractive, as is WFC. They will pick up significant share from the moribund European banks, a taste of which was in WFC’s recent moves including announcing an expansion in Europe and buying BNP Paribas energy business. Strong foreign banks such as UBS will also benefit. This is an incredible opportunity for domestic banks to replace the earnings they lost from Dodd-Frank. Coal remains a core short, despite the decline in the price of the shares. Aside from WLT, which derives almost its entire earnings from met coal, virtually every other coal company generates 70-80% of revenues and earnings from steam coal. This is true of even two of the world’s largest met coal producers, ACI and BTU. Reportedly, ACI’s acquisition of Massey is not going well, an asset they clearly overpaid for, and Moody’s put them on negative watch. Additionally, as part of China’s 5 year plan, they intend to increase coal production by only 3.7%. This is despite the fact that reportedly, 40% of power generators in China that use coal lost money in 2010. Imbedded in the 4% inflation target in the 2012 plan are higher utility prices which is intended to provide relief while lowering usage. Domestically, the warm weather has resulted in stockpiles that utilities will take a long time to work off and the conversion to natural gas from coal at these plants is continuing, arguably picking up momentum. This is occasioned not just by price, but more so by environmental mandates. As to bituminous or met coal, my view on steel remains that as Europe falls into broad recession, China cools and construction continues to weaken, steel prices will continue to weaken. This will lead to more exports from Europe into the U.S. and, of course, China keeps adding to steel mill capacity. I am also short JCP, purely an issue of timing on the turnaround and what is already reflected in the stock price, and KSS. Both troll for customers in a very tough space. On the other side, I am long M.

To bottom line it, the market is in a consolidation phase and faces the likelihood of a minor correction near term while remaining highly dependent upon data in the U.S. and continued optimism about the European and Chinese economies. This Friday’s jobs number could untrack the indices either way but watch out for the second half when the can hits the wall.

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Paris Hilton, Europe and China, Energy – Natural Gas: the new HK and CHK, AAPL

The ratings agencies continue to be as effective as Paris Hilton at a spelling bee as seen by Moody’s latest action of putting some banks under review.   The real troubled period for the U.S. banks has, for the most part passed, so near as I can tell the ratings agencies are pressing their shorts.  To paraphrase the anti-motto of the UFT: “Those that analyze, analyze and those that can’t, work for the ratings agencies.”  Throughout my career, I never recall anyone resigning from a fund or investment bank to go on to the greener passages of the ratings agencies.  “I’ve finally made it; my dreams have come true.  I’ve landed this incredible position at S&P.  Sure I will have to get a night job to make up for the lower pay and have to adjust to working in a cubicle the size of a bathroom stall – it’s not easy balancing my family pictures on a roll of toilet paper – but I have my nights free and significantly less pressure since there is no penalty for being late or wrong.”  As a comedian feels about a significantly overweight individual with a very bad toupee, we should all be indebted to the ratings agencies for providing us with such easy fodder.

 

China continues to be a primary concern for me. I noted yesterday the downside of China’s check in the mail commitment to assist in the European bailout as a sign that things are worse for China’s economy than the market has believed.  I postulated the Chinese are seeing more than passing weakness in their economy as a derivative of the weakness in Europe, their largest trading partner.  And today we see the rationale for China’s magnanimous and proactive statement of financial support.  Foreign investment in China is declining and is at the lowest level since 2009, the bottom of the last recession.  Earlier in the week, the city of Wuhu terminated their policy of providing subsidies to home buyers at the behest of the central government, signaling to me that they are more concerned with a property bubble and inflation than they are with a slowing economy, recognizing what Greenspan failed to see.  China bulls remain steadfast in their conviction of a soft landing, the strategy underlying this belief is that the communists will deploy their massive (but fading) foreign reserves in support of Ferrari driving real estate developers, overextended municipal governments (40% of revenues from property sales and subsequent deals to develop), shadow financiers and the occasional overextended homeowner.  Now add in profligate European sovereigns and we have the first “born again” communist country.  Somehow, I believe this will not be the case, given their very long term view; they will let these folks all suffer their sins to a large extent and not be as generous as a Greek politician who has had way too many shots of ouzo.

 

However, with Europe estimated to account for approximately 18% of their trade, look for  increasing comments professing support.  In fact, China may decide to tender for the EU rather than picking off their assets piecemeal.

 

Greece will ultimately default even though the troika may put them on an allowance rather than providing a lump sum.  The installment plan buys the troika more time to put together a plan to ring fence the other over extended sovereigns.   A Grecian default, not to be confused with allowing the gray to grow out from your scalp, would result in a knee jerk reaction lower in the markets and then a move higher as the credit markets realize that the EU is finally ready to enforce fiscal discipline.   This would actually cause a major rally in the Euro but for now I am staying short, having rebuilt the position over the last week on the belief that all the good news was out and as crowded as the short trade was, the long trade was now the more popular investment.

 

I’m still in the camp of consolidation with somewhat higher equity exposure in lower beta, value stocks and short positions in commodities such as coal, steel and copper.    Perhaps we get a reaction move lower but with the massive liquidity in global markets and more due on 2/29 from the new and kinder “ECB”, bonds are the riskier asset and stocks more attractive.

 

And  one more thing, Apple.  I get that the stock action has accounted for a large percentage of the underlying averages but two things: the story is far from over and the market can move independently from the shares of AAPL.

 

Natural gas.  Looks like the lows may have been put in.  At the end of the day, we’re capitalists and the energy industry in this country is still one of the best managed sectors we have.  While the glut is not over, and hopefully the government recognizes the wisdom of incenting greater usage of natural gas as a replacement for crude, the shut ins are encouraging.  Of course, while the warm weather has increased “inventory” levels of natural gas and coal, these will be depleted at some point and are arguably reflected in the price of the equities to a large extent.  We have two CEO’s in energy that actually do what they say they will do: Floyd Wilson and Aubrey McClendon.  Floyd has been a major creator of wealth as he built and sold, to the benefit of shareholders, 3 companies. He is now in the process of doing it again with Halcon Resources (HK, a ticker in the Hall of Fame for its association with Petrohawk, has had its jersey unretired).  He makes no bones about it: I will build it and exit.  The $550 million he brought to the party underscores his commitment.  As to CHK, admittedly the debt levels, not so onerous in a different environment, are squarely in Aubrey’s sights and he has surprised the Street yet again by targeting higher levels of asset sales and further pay down of debt.  Underlying this, and somewhat unnoticed, is the transformation of a company too dependent upon natural gas (they have also announced they will shut in some gas)  to one with a stronger focus on liquids.  This is what will also drive the new HK – a focus on liquids as opposed to Petrohawk’s dry gas model.  Top CEOs understand and respond to changing market dynamics.

 

Disclosure: I am long HK, CHK, EUO and short AAPL puts.

Greece, Diamond Foods, Euro, Santorum, Friess and Me

Another day and Diamond Foods (DMND) is still with us. I took my profits on the trade, selling the stock when it was up 7% on the day versus a decline of 1% for the broader market.  Will possibly return.

I have been advocating for months that Greece be pushed into default.  Perversely, this would be the best outcome for the markets and the Euro after the knee jerk reaction lower.  Greece, in fact, is less important to the European economy than AIG was to the global economy, than Lehman or Bear was to the US economy.  Germany’s interest is clear in keeping Greece and other profligate sovereigns in the Euro which is that it is the 50 pound weight at the other end of the barbell.  Were Germany to be the even more dominant in the Euro, their goods would be less attractive, harming their export economy.  This would be good for other exporters such as the US, although our goods are already cheap in relative currency terms.

I have a small short position remaining in the Euro.  I cut the core position and had stopped trading around it as it moved to breach the 130 level because the market had become incredibly conditioned to a negative outcome, perhaps proof no more evident than the current level of the Euro versus other currencies despite the headlines.  My short on the Euro was never based upon a break-up of the currency; it was based upon the view that there would be massive stimulus, including rate cuts, to support a weakening EU economy.  Essentially, they would have to inflate to forestall a deep recession.  This has been the policy outcome and I expect it to continue.  I would be more comfortable sizing up the Euro short if Greece stays in the currency than if they are unceremoniously shown the door since, admittedly, perversely, I see a Greek exit as a strengthening event as the world will realize that the EU is one “sovereign” that is willing to do what it takes to address its budget deficits although this would be more of an accidental outcome than deliberate, having everything to do with Greek  insouciance and an unhealthy dependence on ouzo than the execution of a strategic plan.  Keep in mind the folly of the lack of any real plan by the EU: the EFSF relies on contributions from countries including Greece, Italy, Spain and Ireland.  The far-reaching agreement on a more uniform budget reform process is also of negligible value since lack of adherence by the signatories will result in sanctions and fines.  Of course they will have to borrow money from the IMF and the EFSF to pay these fines but that is beside the point.

Let’s just get on with it. Let Greece default, put it behind us and move on to Portugal, a country that the Germans apparently feel more kindly toward.

Despite all this, and despite Santorum mucking up Romney’s path to the nomination, I am still positive on US equities although fully anticipating a consolidation. I am not one of those in the camp hoping for consolidation because it is healthy for the markets.  I’d rather see an unhealthy market go up every day although that is, of course, unrealistic.

When I was a salesperson at Salomon Brothers many years ago, I received a call from Friess Associates, an account I covered (the Brandywine Fund), inviting me to a cocktail reception at the home of Foster Friess.  I had never met Foster – he had already ceded active portfolio management to his staff – but had been in his office a few times. Lining Foster’s office wall were pictures of him with Presidents and other important people.  I asked why I was being so honored.  Well, came the response, Foster wants your support for Rick Santorum, a candidate he is endorsing.  You can send a check if you can’t attend.  This was a less than subtle way of asking me to contribute to Santorum’s campaign. I said I would look at Santorum’s platform  and get back to them. This was not a response they appreciated.  After looking into his background, I decided very quickly that I couldn’t support Santorum and declined, offering instead to make a contribution to any children’s charity of their choosing.  As with my initial response, this did not go over well.  And times haven’t changed –  I still can’t support Santorum and Friess still does; in fact, he is Santorum’s main backer.  There is a reason these two hang together and both are scary. http://www.reuters.com/article/2012/02/10/us-usa-campaign-friess-idUSTRE8190AK20120210.  And, by the way, I’m a Republican.

Draghi’s Diabolical Plan: The Carry Trade

Brilliant maneuver by Draghi – likely unbeknownst to him.

ECB lends money to the troubled banks at 1% who then go out and buy troubled debt, including new issue, at much higher coupon, taking in the difference as income.  These banks then use the bonds as collateral for the ECB loans.  Essentially, Draghi is doing indirectly what he can’t do directly:  buying sovereign debt new issue.  These bonds still find their way onto the ECB’s “balance sheet” and undoubtedly will not be marked to market should their prices collapse which of course would otherwise require more capital.

Problem is these carry trades never end well nor does the piling on of more debt solve a debt crisis.

The unintended consequences of an insufficient plan.

Europe: The Lehman Moment Is Fast Approaching

I was bearish before; I’m even more bearish now. European sovereigns are evidencing a lack of confidence in their own bailout plan and the Lehman moment is fast approaching.  Have to be crazy to have much, if any exposure, to this market.  We will hit new lows.  How’s that for dire?

Building the bailout fund is incredibly similar to building a book on an IPO or secondary, something I have done hundreds of times. I can tell a bad deal from a mile away. This deal is bad.  With a hot deal, everyone wants in regardless of their fundamental view.  Funds will even play in an “okay” deal if they are confident the syndicate bid will support the selling pressure.  Sometimes, a fund is even willing to take a small  hit in the interest in maintaining a good dialogue with the Lead Managers.  But no one willingly goes into any deal if they expect to lose substantial funds.  Insiders – in this case, the EU countries with the most to lose if the deal falls apart – often add to their holdings on the offering, justifying it as a capital infusion or a necessary sacrifice.  If the UK were convinced the current plan to stave off European default would solve the crisis and substantial principal wasn’t at risk, they would gladly contribute rather than being labeled the “bad guy” by sitting out the deal.   The UK, however, recognizes that this transaction will break syndicate bid before the shares are delivered and that they have to keep their powder dry for when contagion hits their shores in a much bigger way.  Once it becomes clear to a book running manager that the deal is being given the cold shoulder by the conventional buyer, they then approach others, such as sovereign wealth funds.  In this case, that would be China but they have said no as well.

Coming up 50 billion short on a 200 billion euro book is a huge miss.   Unlike a lot of IPO’s and secondaries, the EU bailout can’t be downsized to get it to the market in an effective manner.  And by the way, a lot of downsized deals often fail because the market regards them as troubled.

Ultimately, the markets shun the underwriters with poor performance by getting their borrows lined up even before pricing.  Given the track record of the EU and IMF, the UK and US have already decided the ESFS is a short.

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France, Italy – Slow and Angry; EU Ratification Will Fail; US Stocks.

First some good news, the ratings agencies have finally cast themselves as the most consistent market indicator with an inverse correlation of 1.00  as downgrade events are now reflected in market moves higher.   Enough said.

Monti has not been in office long enough to change a roll of toilet tissue yet already had to call for a confidence vote.  This does not bode well for the future.

My view has not changed.  Achieving ratification of the EU treaty will be akin to asking turkeys to vote for Thanksgiving.  And even if the 24 non-French, non-German, non-UK governments do approve this union with a gun to their heads, compliance with their provisions will be tough to come by.  Monti made that clear today in a veiled threat to the Germans

“To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the euro zone brings us … the risk of conflicts between the virtuous North and an allegedly vicious South.”

In other words, “don’t even think about asking us to do anything that we don’t want to do such as collect taxes.  Culturally, we don’t do that kind of thing.”

We saw some minor protests in the Italian parliament regarding the austerity measures, with the largest Italian labor union protesting more loudly on the cobblestone streets.  Put into perspective, these protests are targeted at austerity measures being implemented by the Italian government.  Can you imagine the anger when the Germans try to pull in spending?  The Greeks rioted in the streets against fiscal prudence and cost G-Pap his job before the treaty was a twinkle in Merkozy’s eyes.  I’m going to wait until Solution #6 makes the rounds at the next summit.

But I finally understand the lack of speed which the French operate.  In fact, yesterday’s legal accomplishments, the conviction of Carlos the Jackal for blowing up part of Paris and the conviction of Jacques Chirac for raping Paris, only took 30 and 20 years, respectively.  Translated into sovereign debt issues, that should give French banks enough time for the terms of the CDS they wrote on sovereign debt to expire.  Brilliant strategy.

Germany has made it clear they won’t pay up, the US will not contribute to the IMF to bail out Europe and China will use their foreign reserves to buy Europe – not European debt – but rather Europe.  I have asked many what they see as the solution to this crisis and no one has come forward with a solution prior to Europe’s Lehman moment. That’s what it took in the US, and we only have a 2 party system.

French banks will be nationalized as will others throughout the EU.  But that is only part of the solution. Ultimately, the other twin, Mario Draghi, will have to print money and buy more bonds.  The decline in the Euro is far from over – this is only a momentary respite.

Of course, none of this bodes well for US equities.  While Europe represents only 15-20% of our end market, the contagion casts a much bigger shadow.  S&P estimates will have to come down as the dollar strengthens, resetting valuations.  Europe will cascade into recession and China’s economy will continue to contract, further hurting global growth and the US recovery which has been tracking nicely.

The E&C sector and commodities have to continue to weaken as global growth slows.  I like domestic stories that are not dependent on a burgeoning economy for earnings growth.  Managed care remains a favorite and these companies continue to raise their earnings outlook as MLR improves with fewer doctor and hospital visits. WLP at 8.3X EPS with a massive buyback (20% of shares on top of 5% retired earlier this year) still looks cheap.  If employment ever picks up, this will add to growth. Sequestration provides a better result for them than the elusive budget deal. Health care overall looks attractive. MDRX, a company that provides technology solutions to doctor practices and hospitals, supported by a $30 billion incentive boost from the government to put all patients on electronic records, is inexpensive and it is an attractive acquisition candidate for a company such as ORCL that is on record as saying it wants to increase its presence in this business.  I took a small position in CSC, a stock that has been justifiably destroyed, while I do more work on it.  Meantime I get a 3% yield which appears safe.   And of course, there is QCOM, unique in its fundamentals in the tech space.

RIMM – the only question on this company is which will last longer – my phone or the company. Right now its neck and neck.  I used to love my Blackberry but now the service and my 18 month old phone, perform as well as Michelle Bachman at a debate.

As to Bachman, she has to stop using Tammy Faye Baker’s make-up person to be taken as a “serious presidential candidate” (her words).

Europe Falls Short Again: What’s Next for Commodities and Stocks

“I could not have been more clear, I specifically asked for a bazooka and all I got was this little long range pea shooter,” said Mr. Market, clearly dejected.

Europe has done it again, taken the markets to the brink of despair, then sweet talked investors off the edge.  Frau Merkel has proven herself to be as alluring as the mythological Greek Sirens, her sweet songs of a stronger European Union with tighter budgetary controls enticing enough to convince unsuspecting traders to increase their risk.  But like a pimply faced teenager stuck at first base, they too will feel unsatisfied and longing for more.

At least they got smart about one thing, or so they believe, extending the deadline for the seminal announcement until March.  After the last two short window lead ins, they realized it takes months, or more, to craft a plan rather than a fortnight.  They will still come up short as each country realizes what Britain did which is they have no interest in being governed by the same country they had major problems with, well actually not exactly problems, more like out and out war.  However, even if reasonable  minds say that was then and this is now, the cultural divide between each country will prey upon this agreement.  But even if it does pass – it has not been officially ratified – and the countries needing approval from their broader government secures their assent, the very core of the agreement is flawed.  Let me see if I get this right: a country fails to either establish or enforce a budget in line with the requirements of the EU so the EU will then assess heavy sanctions upon the profligate nation.  Yup, that will work.

Candidly, as to my kids, I was not much of a disciplinarian. “If you do that again…,” I would say, both they and I knowing they would do it again and I would say that again.  Thankfully they turned out great.  Not so with Greece.  Without moral hazard, countries will continue to do what is in their politicians’ best interests.  Greece lied their way into the EU and the EU is responding with bailout after bailout.  I still believe allowing them to fail would be the best result.

This is the fifth bite of the apple for Europe and they continue to come up short, lagging a step behind.  Still no ring-fence, still no plan to save the banks, still nothing of substance; just words.  They are behind in everything, even video games.  The Mario Brothers went out of style a long time ago and the Italian version – Monti and Draghi – are not showing themselves to be Super Marios at all.  Draghi can get there if he opens the purse strings with a massive liquidity push, buying even more bonds than the ECB has in the past,  but despite two easings, he is still prone to alligator arms like the clients I used to wine and dine from my perch at Lehman;  his hands don’t reach the bottom of his pockets.   And with the most recent cut in rates being the result of a divided vote, it may get tougher for him to cut further given the European single mandate.  However, as the global economy slows and the USD strengthens, inflationary pressures will ease providing cover more rate cuts.

The banks still need $153 billion in new capital which I don’t see how they can raise without nationalizing some of the banks. But Santander does have a solution: they will just lower the risk level on their assets. Yup, that worked for Lehman.  So much for paying heed to the EU.  And should there ever be  a default and the CDS insurance kicks in, the global financial system will see a bigger meltdown than a forty-year old Japanese reactor.

The AAA ratings in Europe will be a relic of the past, no question as they are in virtually everyone’s mind, the only unknown is whether this will mark a near term bottom.  These ratings agencies continue to be an embarrassment, always multiple steps  behind.  Rumor has it that S&P management is urging their employees to contribute to the Herman Cain campaign for President.

Meanwhile, China continues to be slowing and I believe there is little they can do, or want to do, about the real estate bubble popping.  This bodes poorly for commodities.  With construction slowing, China has enough stockpiles of needed commodities to wait for a further decline in prices.  This is what they have always done when able and this is what makes them great traders.  They are like a private company, not worried about quarter to quarter earnings, taking a long-term view.  They were Warren Buffett before Warren Buffett became Warren Buffett, buying when others are fearful.  But with their primary end market, Europe,  going into a recession, possibly depression, the Chinese are limited in terms of what they can do to drive growth.  They would rather look for defaults and then step in and buy Greece or maybe even Hungary – its time to move on now that Taiwan seems under control.  India, though, not so much. The slowing in their economy, while not a complete surprise, is not welcome nonetheless.

This slowing will also hurt crude.  If Iran were not in the mix, we would already be trading in the 80’s to low 90’s.  Inventory figures have not been very good.

Euro short/ dollar long continues to be my favorite position.  As to stocks: I remain very light in exposure and tilted toward defensive.  Commodities look cheap but they always look cheap on the way to the bottom. I can be patient.  There has been too much beta chasing recently, in stocks such as X, that has to unwind.

The strengthening of the dollar will be as much a result of the strengthening US economy as well as the crumbling European economy.

So where can I go wrong?  The only way out of this is for massive stimulus by the ECB.   IMF rescues haven’t necessarily helped in the past. I am again inserting these charts I borrowed from JP Morgan:

IMF


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