According to bond markets, some sort of a Greek default is immanent. Greek 1 year bond yields are at 90%. That's pretty much a lock that a default is immanent. Just now I read an article that says that its expected that Greece will receive it's next tranche of bailout funds and that officials are denying speculation of a default. lol! Who are you going to believe? These "officials" or the debt markets? The market is pretty much saying that further aid will either not be forthcoming or won't make a difference if it does.
Now, I realize the market is ST oversold (but not extremely so like it was near the bottom last month) and the gloom is really thick which argues taking a contrarian stance but I've always said that using sentiment is more an art than a science. You need to take into account the fundamental backdrop and with what appears to be an immanent default by Greece, bearish sentiment is justified because of the contagion effects that are possible due to this black swan event. Now, that doesn't mean that in the interim there can't be a sharp rally right here on any kind of marginal good news to clear oversold conditions and punish bears who are pilling into bearish instruments (puts), but playing that game of chicken with other traders is not for me.
ST bounces aside, in my opinion, the market will not be able to resume the bull course until we at least see Greece default and/or restructure. Last summer we got away with just putting a band aid on, but I doubt we can see a replay of that this summer. I know the bears have been saying this for a while to no avail but I think this time they are right when they say that the can kicking needs to stop. When I say right, what I mean is that I believe the timing is right because it seems to me that the market is demanding it whereas before it was willing to ignore it and accept temporary solutions. Dealing with a Greek default/restructuring would probably result in ST pain but if policy makers can come up with a good clean up plan, it could clear the way for the market to advance later on. It's like puking after a heavy night of boozing...once you clear your system of the toxic booze you are on the road to getting better (btw, I haven't puked in 20 years!).
I would love nothing for this post to be the ultimate contrarian indicator and the market soars back towards the highs right here right now. I'm an optimist at heart and I want to see a happy ending to all this but when it comes to the market I'm a pragmatic realist....or least I try to be. We can still have a happy ending to all this but again, I believe we will have to come to terms with the hopelessness that is Greece first among other things.
Last week I couldn't resist the opportunity to unload more of my already limited equity exposure on one of my positions into strength at a favorable price which now puts me at about 80% cash. I think I was quite fortunate to see this stock (wzl.to) hold up well considering the damage in the market. I'm now in a position whereby my all my stocks would have to go to zero to put me in the red for this year and that's pretty much impossible given the solid balance sheets of these companies...one of which is a shell company with 100% cash and no debt. I think I did a pretty decent job transitioning from offense to defense this year. I hope I will be able to do the reverse.
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