Get Your Pipes Ready

The shit is about to hit the fan.

Greek-German spreads are at new post-bailout highs. Spanish yields are at 6.3% and Italian yields are quickly closing in on 6%. In short, contagion is the theme and everything stems from Greece. Should they leave the euro, estimated losses can be as high as $400 billion, a sum that cannot be absorbed at this time.

Safe haven countries, like the UK, Germany, US, Norway and Austria are beneficiaries, at least in the bond market, to the dislocations in the PIGS. You’d think these bumbling fools in Europe would come to some sort of agreement, in order to save their own asses. But for the moment, they seem to be headed towards calamity.

Bear markets raids can be very unsettling and they always feel like an eternity. When markets fall, on what seems to be “the worst possible scenario,” it’s easy to get shaken out or even coerced to get short. The only problem with getting short into the teeth of a decline is the ever increasing chance that policy makers will intervene to bid markets higher.

This has been a winning bet for more than 4 years now.

Here are the scenarios that we face right now.

Greece exits euro.
Contagion spreads quickly to Portugal, Spain, Italy, Ireland.
A run on PIGS banks begins, only stemmed by a “bank holiday,” where depositors are forced to keep money in banks.
Markets fall by 20%.

The more likely scenario is this one.

Greece agrees to new terms with Troika.
Yields come in on PIGS, at least temporarily.
Markets respond favorably, sending stocks +10% to new highs.

If you are sick and tired of having to deal with the same fucking problems, join the party. I can tell you from first hand knowledge that well-to-do investors abhor this market and rather invest in Sotheby’s auctions– than fuck around with the opaqueness of stocks–which are subject to the caprices of a few bank and central bank executives. Although stocks offer phenomenal liquidity and potential returns, if done with skill, the allure of Wall Street has been sullied to the point where it’s almost comical to believe long term investors stand a chance. Now more than ever, you have to be nimble and remember that living to fight another day is much better than dying namelessly on a battlefield strewn with the lost hopes and dreams of overzealous speculators.

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