Listen, lots of people are gonna tell you that the current sovereign debt crisis in Europe is not to the scope of the financial crisis that was born here and spread the world over a few years back. And most will tell you that our banks don’t have nearly the exposure to European sovereign debt as they did to one another in the prior crisis…..Well I can buy all that, but if Europe is gonna be sunk by their financial dependence on one another I don’t believe that our financial institutions have the ability to “de-couple” from Europe, much like our stronger better capitalized banks (even the ones backed by God, I mean Buffet) were not immune to the meltdown when it came in the Fall of 2008.
When Greece defaults, and Govt’s are ill prepared to shore up their own banks, it will be like the financial industry’s “Lehman Moment” almost 3 years to the date. Germany caught a lot of crap this weekend for the rumored action of their govt putting in a Plan B to support their banks in the event of a Greek default, if there is a developed nation who is not seriously considering this possibility than they are as delusional as Dick Fuld was in August to Mid Sept 2008.
Markets like this are merely function of emotion, and ours unfortunately have not had their crescendo yet…..I remain defensively positioned and have place some flat out bearish bets (with defined risk) that we will have our Lehman moment once again. I don’t want to be a fear monger here, but all of this seems fairly obvious to me, you cant just have the damage done to markets like we have see in Europe this summer (the DAX down 34% from the April High) and just stop on a dime when govt’s and central banks try to put a band aid on a gaping wound.
I do believe that our fed, our govt and central bankers the world over will throw everything they have at the current situation but I am not sure we see a similar reaction to what we saw in Spring 2009 and fall 2010 to such stimulus. A snap-back rally is coming and it will be of the 10% variety and the question is, FROM WHERE??? I will continue to fade overbought rallies and trim shorts after selloffs, while always using stops and most often defining my risk…..you do not want to be short in front of any coordinated action and it would likely make sense to cover most shorts ahead of the FOMC’s 2 day meeting starting Sept. 20, especially if we remain weak between now and then.