Some
quick reports on the Euro crisis:
The
WSJ reported Friday that talks between Greece and its creditors broke down
increasing the likelihood that creditors will incur huge losses.
As
reported by the WSJ, when the Greece debt talks started in July, the loss
proposed for bondholders was 10%. In
October the “haircut” was 50%. Since October, Greece’s economy had deteriorated
further and higher cuts are now needed.
This
is apparently the “death spiral” proposed by some; Greece’s economy slows from
austerity demanded by other Eurozone countries. Revenue drops from lower tax
receipts and the result is that the country is in worse shape than before the
austerity began.
In
the debt game, it is not a god idea to allow the debt to grow to crisis
levels. It is nearly impossible to fix –
are you listening US politicians?
Now
as always, we have to relate this to our economy and our banks. Here’s a repeat of comments I quoted from Robert
Reich’s blog from 5 October…
“A
Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly
the same effect on our financial system as the implosion of Lehman
Brothers
in 2008 - Financial chaos…. Big Wall Street banks have lent German and French
banks a bundle….The Street’s total exposure to the euro zone totals about $2.7
trillion.
That’s
just US exposure. Can the ECB backstop
Euro-banks enough to support the financial system if Greece fails? Then there’s the US banks.
To
get an idea of how critical this may be, we can relate this to a specific case. Jamie Dimon, CEO of JP Morgan Chase said recently
that his bank’s exposure to Europe was relatively unchanged. WSJ reported the exposure at 15.9-billion. Earnings were about 4-billion. So their exposure is 4x their earnings. It is doubtful that even the well run JPM
Chase would survive that calamity.
The
market is likely to get very choppy soon, but today, it shrugged off Greece
issues and posted a 5pt. gain and moved up to1294 after World markets posted
strong gains. VIX rose 6% to 22.2 so not
all of the traders are sanguine about the market going forward.
There
was an article on trading in Money magazine this month that quoted an analyst
who said, “To be a successful trader, you must be able to predict the
future.” That couldn’t be more
wrong. Follow a system; follow the
market; never try and predict the future.
It can’t be done. That’s why I
follow the NTSM system.
Today
the NTSM analysis remained BUY.
I
bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct
NTSM buy signal. I remain 100% long in
the long term portfolio (100% stocks in the 401k.). (See the page “How to Use
the NTSM System” – the link is on the right side of this page).
I
am 90% long in the trading portfolio. I
may take profits on the trade soon to cut some risk.
Just
a reminder: 100% invested in stocks is way too much for most rational
folks. Don’t do it unless you have a
high tolerance for risk.
