As I suspected, it looks like a bailout of some sorts is coming for PIIGS. German authorities appear to have made statements that they are working on a proposal to backstop Greece and other troubled EU members. This news obviously caused the pop in the market Tuesday. There's a lot of moaning and groaning out there about how these bailouts are bad, about how you can't solve a debt crisis by going into more debt. I disagree with these statements. Yes, it can in fact be a bad idea to bail someone out and go deeper into debt but it's not always an inevitable losing situation. Have you ever seen the movie Rounders? Mat Damon’s character Mike McDermott is in a big hole. He's broke and owes $15K to some bad people the next morning. What does he do? He borrows $10K from a friendly source and gambles it playing poker (against the same person he owes the 15K to!) Due to some brilliant playing Mike ends up paying off all his debts and has $30K to keep for himself.
That's an example right there of how a debt crisis is solved by going into more debt.
Ya, I know, the situation is different in regards to the PIIGS but I hope I've made my point...it doesn't have to end badly....it is in fact possible for a happy ending. At the very least, by getting a lifeline it can buy the PIIGS time.....enough time to bankrupt yet another generation of bears who are trying to profit on the "end game" of continued debt creation. Bears like Pretcher have been calling for this end game for decades and he would have been broke several times over requiring multiple bailouts of his own if he actually bet on his bearish predictions.
Who knows what the limit is before debt becomes unmanageable...before the whole thing collapses. Another thing people need to realize is that due to low interest rates the debt "burden" is low for all these indebted countries and people for that matter. (Yes, that can change but it until it does this fact remains a fact).
The bottom line is this - don't get caught up in "debt end game". Authorities will use every means necessary to avoid this end game and prolong it a lot longer than you can remain solvent. It could take another 5,10,20 or more years for the "end game" and in the meantime you will miss out from profiting on what the permabears would call "fake prosperity". Don't think like these idiots. Everything is REAL nothing is fake. This attitude will destroy your account. The money anyone made during the 2003-2007 economic boom, which was based upon "fake prosperity" due to the housing bubble, was very REAL and the money bears lost during that time was equally as real. And just like with Mike McDermott, who is to say that all bailouts have to end badly? They can work and actually be profitable for person/entity providing the bailout. If you want more relevant examples take a look at the bailout in response to the panic of 1907, the bailout of Chrysler in 1980, the resolution trust bail out in response to the savings and loan crisis in 1990...even modern day TARP! What makes a bailout work? When you support a quality company/economy during a time of crisis when prices are low and few are willing to buy because that's the best time to buy. TARP was profitable because the government bought low...when panic was prevalent and nobody else wanted to step up to the plate. It's arguable whether PIIGS, or any other heavily indebted nation today are considered "quality" and we aren't in a panic right now but we are indeed in an enviornment of ingrained pessimism/skepticism which means that these bailouts could still in fact end up being at least temporarily successfull and profitable and by that I'm talking about a period of several years.
As far as the market goes in the ST, don’t be surprised if for some reason we see a sell off after an official bailout is announced now that the market has popped on the rumor. Something in my gut tells me that we could still see Friday's lows get probed before the market launches back towards 1150. I'm not really sure why I feel this way...maybe it's because I know that the market often doesn't make it easy to profit from the obvious. I realize I could be second guessing myself and when I do I always defer to the indicators and they just are just about ready to give the green light for a strong buy. I liked how the VIX didn't collapse on the strength today and how the put/call ratio was elevated showing skepticism. The "powder keg" of pessimism is in position...
Here's my favorite scence from Rounders. This is right after Mike defeats his foe and successfully regains his original bankroll.
No comments:
Post a Comment