Monday 29 June 2015

Do not open until Eur/Usd is at 1,1150, FTSE at 6650 or Dax at 11200

Dearest friends, 

            I will be long gone by the time you read this message. It is just past midnight and, as I lie here awake, unable to sleep through the angst of a life of turmoil, I stare out upon the screens of doom and lament. I despair of news that the world is about to suffer an apocalypse as the angels of hell rain down upon the financial markets. A doom foretold by the angels of economic death, in the names of Munchau and Evans-Pritchard, as foretold not minutes ago by telegraph. I wrack with pain at the idiocy of those once again looking for basis swaps to indicate the imminent collapse of all things European and I shrivel in a fetid corner away from the horrors of those crying the end is nigh. So here dear friends, I say goodbye, for I have taken it upon myself to sever my shorts and be done with this life as a bear.

Right, that’s enough theatre.

A few points, though it's now only 2am London time.

Eur/usd has not cratered. It is in the midst of the range it has been in for the last 4 months.
Today there is more chance that the Euro is a little more German and a lot less Greek.


EUR/USD daily candles as at 23.00 BST Sunday night



The Dax is currently trading only a smidgen below where it was a week ago last friday before last Monday's hope rally. It is still currently higher than the levels it was at 18th/21st June.


Cash Dax (off the futures) daily candles  at 00.30 BST Monday


Interestingly it's the FTSE that has broken recent lows instead, perhaps as GBP roars on the 'safe haven' trade. Sorry, I wont believe that unless I see London house prices soaring on European 'run away' demand again.


No matter how libertarianly anti EU some of the rising parties in other periphery countries are, the public hang drawing and quartering of Greece (lets not debate whose fault but agree that life in Greece is about to get tough for a bit) is going to be a bit of a wake up call to those wanting to go over the edge. Portugal may not approve of the beating their cousin is getting but I bet they are glad it isn't them. All of this boils down to me thinking there is less likelihood of further imminent EU departures  so you can forget all this sell the crap out of periphery bonds stuff after this first kneejerk, unless of course you are selling the crap out of them for more solid pre-existing reasons such as inflation, growth, market positioning etc..

You may well be asking how I can swing on opinion of the markets only just two days ago having suggested violence on the streets of Athens is only days away. I stand by my predictions for Greece but expectations have swung dramatically though bad to apocalyptic. Three days ago no one seemed to think it possible, but now that outcomes have come out as they have we have the reverse of last Monday.

Yes folks, it was exactly one week ago that the markets were rallying hard as some Frenchmen were saying all would be fine. Sounds pretty silly to have even believed them now doesn't it? But we are just as likely to have an overshoot the other way with regards to  expectations vs outcome.

All global markets have fallen so far. The Nikkei is off not far shy of 2.5% and SPX is off 1.5% right now, but you don't have to go far back in any chart to see that these are not game changing moves. Oil is down a bit, hardly reflecting an imminent collapse in demand caused by a global slowdown caused by Greece.

The biggest problem out there for Monday is panic with the media is throwing fuel on the fire, and dancing around singing Hallelujah.

Background factors to consider:-

Equity manager have been running record levels of downside protection.
Firedoors and bulkheads are in place in Europe with regards contagion.
Liquidity for all non Greek areas of EU is just fine. Compare with Cyprus blow up.
Greece is less of a fear and now more of a reality.

In summary:-

Yes it's happened
No it won't destroy the Euro.. this time around
Yes, it will give the EU a kick up the arse and hopefully push them towards reforms.
No, peripheries are not going to blow up in the next 6 months
Yes, Americans don't get European greyness and will assume the worst tomorrow.
No, some Americans don't know where Greece is.
Yes, it is another classic example of what happens when borrowing someone else's currency (even if you are are led to believe it's yours too)
No,  all Euros are not equal - The Euro in your Greek bank account is worth less than the euro in your Greek pocket.

And finally, - the worst is now being assumed and the worse than worst expected. So yes, markets will bounce.

I am standing by to buy back my shorts and may well have done so by the time you read this post.

Oh, and let us spare a final thought for the poor portfolio managers and funds who had tidied up there books, got their weightings all correct and given performance guidance ready for today's half year end when, boom. Greece happened.  Rebalance that, if you can.

Night night.




1 comment:

Anonymous said...

Nice piece !