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Friday, September 16, 2011

market indicators

When everyone is expecting a credit freeze, subtle indicators are hard to come by. (The indicators get shot to hell because everyone is front running the worst-case scenario.)  However, I just want to provide a brief summary of what we know going into this weekend.

1. We know there is a ton of behind the scene talks and actions to try to remedy the potential EU credit freeze.

2. We know the EU leadership will not allow a credit freeze to take place. (That is the one unified voice amongst the noise.)

3. We know Europe is still lacking the capability to force bank mergers or provide forced liquidity to the banks. (Still need an amended EFSF.)

4. A meaningful re-structuring of Greek debt can not take place until #3 is taken care of.

An interesting 'tell' today was the hard reversal of the EU banks.  This maybe an indicator that forced mergers are coming, potentially destroying the equity in some of these names.  (I do not care if the equity of these banks get destroyed. All I care about is that a credit freeze is prevented.)

If this is the case, a re-structuring maybe happening sooner-rather-than later.  There was chatter that a 'greek-default' would not happen until October or December, but the truth is it can happen anytime, so long as the capability of #3 is ready.

Based on the SP500 reaction to this sharp bank reversal, it suggests to me the market may see a potential 'shock' after the Greek re-structuring.  But I think that 'shock' will be a capitulation day, and I will be buying a lot. (Target prices may have changed in relation to where the stocks are today.)

I am cash heavy right now, a lot of it due to the above, but also for something I am not too sure I can talk about on the blog anymore. But I am making good progress with it.

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