Guest post by Peter Tchir.
I remain short. I am flat Spain, Italy, and banks. I am short U.S. stocks here. I like CDS, but think IG18 will drift back to over 100 before it can take another leg tighter.
I think so much has been priced in from the ECB, that we face some disappointment as more plans get leaked or opposition becomes more vocal. I believe the ECB will do something that is sufficient to change the dynamics in Europe for a period of time, but think they are constrained enough, that the market may underestimate their plan. The market will view it as insufficient. LTRO1 remains a prime example. Everyone bought the rumor, sold the news, and then decided they better actually buy the news.
What concerns me most about being short, is that it seems very crowded. Not only is it crowded, but many bears (or underweight bulls) are pointing to the same things as reasons to be short, and some of those reasons don’t seem right to me. Here are 4 things too many people seem to be focused on and drawing potentially the wrong conclusions from, and why I don’t think any pullback at this stage will be meaningful and why I will be looking to cover and get long again on a relatively minor move.
About 80.9 percent of Greeks believe Greece should struggle to stay within the eurozone “at any cost,” fresh opinion polls showed on Wednesday.
Some 45.4 percent of respondents in a survey conducted by GPO firm for local private television Mega channel said that they regarded as most probable a Greek exit from the European common currency. And 48.4 percent of the respondents said that such a prospect was less likely.
But they don’t like the austerity measures that staying in the Euro entails:
About 77.8 percent expect the next government to emerge from the June 17 general elections to renegotiate the harsh austerity terms of the two bailout deals reached since May 2010 with international lenders to avoid a disorderly default
The Greek situation must be adressed asap. What are the options though? Spiegel’s take on the Greek dilemma.
Will Greece obtain fresh aid or slide into bankruptcy? Those will be the fundamental issues at stake when Greek Prime Minister Antonis Samaras travels to France and Germany this week for meetings with French President François Hollande and German Chancellor Angela Merkel. Even though the talks won’t result in official decisions, the two most important politicians in the euro zone will know after these meetings just what they can still expect from Greece — and they will draw the necessary conclusions.
For the currency union as a whole, however, the Greek tragedy itself is merely a prelude to the real battle to save the euro. If Greece actually did go bankrupt or left the currency union, the main priority for the rest of the bloc would be to use every means possible to prevent a further dissolution of the euro zone — even if these means have some quite problematic aspects.