So one day Europe can't agree on what to do with the Greek debt crisis. The next day everyone is all smiles and
the market was in rally mode. My question... have they all gone soft in the head? How on Earth does this mini agreement change anything?
What am I talking about? Now that we know the Greek government has survived it's recent confidence vote, the EU is going to cover Greece's shortfall on its debt payments... if... they make 80 billion euros in budget cuts. For a country that prides itself for its socialist policies this isn't going to be an easy task. As we speak, not only are there protests and strikes ongoing but there are also protest camps. What are they? Places where people are trained on how to protest effectively (Effective? Think Seattle during the Free Trade Area of the Americas talks). Already the utilities workers have cut the electricity supply as... you guessed it... their own special way of protesting.
Here's what I see. The EU money will stall this crisis for three months. In the mean time Greece will have a summer of protests and, if they work, could become another Iceland. I see at least Spain or one of the other weak sisters doing the same thing. Does Belgium even have a functioning government? The fact that a country can survive so long without one should tell all that you need to know about big government.
In fact Europe is only one source of concern. There is still China and it's "man-made GDP numbers" (quoted from Wiki-leaks) and of course the U.S. and it's own troubles. My "QE stealth" bet, aside from asset rollover, is with repatriation of off-shore corporate profits. When those dollars come on-shore they'll certainly be stimulative.
The question at this point won't be if a credit crisis will occur somewhere but which black swan will do it and who will turn out to be the next Paulson?
Hedge-funds have been sifting through their theoretical inventory of fat tail events trying to profit. The neatest idea I have heard are the folks who bet that the Chinese yuan will DEvalue versus the USD. The people on the other side of that trade are probably another hedge fund and both can't be correct. What I don't get here, however, is that the exchange rate is directly controlled by the Chinese government... what were they thinking? Well... if you hear that the Chinese sovereign wealth fund is buying into an obscure Texas hedge-fund you'll know why :)
Of course, don't leave John Paulson out of the race to become the next Paulson. He took a hit on Sino Forest but it isn't as if that was his next great trade (more like a hard asset play gone bad).
I hope to reap my black swan theories before all this goes down. That stuff you can find in my post "An Interesting June Indeed (Part II)".
The idea here is to cash out the winners as they happen and do what everyone should have done in 08-09 i.e. sit on the sidelines until things got nutty cheap and ride 'em back up again.
Well folks... good luck to all and happy hunting indeed!
(BTW... I managed to write this whole missive without using the phrase "Kicking the can down the road.")