Greece Buys More Time
Greece handed 18 billion euros ($22.6 billion) to its four biggest banks on Monday, an official said, allowing the stricken lenders to regain access to European Central Bank funding. But this is only buying a bit more time in our opinion.
It seems very likely that with the Euro currency hitting new lows almost every day, increasing banks runs, and with no credible solutions in the near term for the Eurozone countries, Greece will eventually exit the Eurozone to be on its own.
And, unfortunately, the financial system will be forced to brace for a potential “Lehman Brothers-like” shock if and when that happens. It has the chance to kick off a domino affect even though its failure by itself could be covered monetarily.
Many are now predicting a certain worldwide recession in the near future and Spain’s debt is nearing a very dangerous level according to financial experts. It is not clear how their debt problems or Italy’s will be handled due to their enormous debt size.
The European politicians and the ECB need to act very soon if they want to help lessen the severity of what could be another financial collapse later this year or in 2013. It is hard to predict at this point how it would compare to 2008 but it definitely will crush investors with too much equity exposure. It is not too early to start playing defense, raising more cash, and reducing equity risk.
As long as the Euro currency keeps falling and Europe has bank runs, stock markets are at a huge risk for a big selloff. It could happen anytime, it could involve a massive down day, and the depth could be 10% to 30% or more if the right safety measures by the world’s central banks and funding organizations aren’t taken.
Once again, the short term upside could have a bit more to go based on the Greek bank bandaid and an oversold bounce. But, in our opinion, investors should take this opportunity to sell into any strength and to lighten up on equities. Traders can continue to look for some select longs for a few days or short sells for the next few weeks or longer.
The recent market bounce is more of a technical relief rally (“dead cat bounce”) until proven otherwise. It could still move higher towards 1,340 but our lower target for more weakness in the next few weeks and into June is the 200 SMA near 1,280.
Power Stock Picks
MR is moving back to shorts after this brief bounce. Here are a few ones worth a look.
Investor Notes:
MR believes gold prices below $1550/oz, silver prices below $28/oz, and WTI Crude Oil at less than $90/barrel offer long term investors a good buying opportunity. Scaling in slowly on more weakness is reasonable with hold periods of 12 months or longer.
The caution alert for retirement accounts and investors is still present. Selling some equities to protect gains in case of more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.
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Good luck in your trading and investing,
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