The Europeans threw more money at their problems and fixed them – or so they would have us believe. It won’t be long before Greece spends more money that it doesn’t have, and Italy and Spain as well. The problem can’t be solved in one simple bail out. When you live beyond your means, your debt must be paid by someone else. The fact that the Germans were willing to do it this time doesn’t mean they will the next time.
In the short term, the markets will bounce, but as we hopefully leave the European fairyland of easy money and easier debt behind, reality intrudes. In the real world, the economy and earnings determine what our investments are worth. While the Europeans were blithely burning barrels of cash every day waiting to get a consensus on Europe, U.S. companies were going quietly about their business. How they did will determine the markets from now on, not what Angela Merkel had for dinner.
This is a dangerous market to fade. Unless you are highly experienced, don’t get in its way. At some point, we are going to get a nice, long decline. Since everyone is waiting for that, though, it isn’t likely to happen any time soon. So sit tight, play some longs, and we’ll have fun on the short side soon enough. Just remember, the higher this endless rally continues, the harder the market will fall when the time comes.
Patience.
