Guest post by Peter Tchir of TF Market Advisors.
The term “perma” seems to get attached to anyone who has an opinion for more than a couple of weeks, but yes, I have changed my view on Europe. By the end of LTRO2 when most of the world was bullish we were bearish. It was painful for a bit, but we saw the signs as early as March 2nd, and accelerating by March 16th that Spanish debt was struggling. We remained bearish for quite some time but gradually shifted to a bullish bias. Too early as we had to ride it down further, but got more bullish on the back of two main catalysts – Grexit and JPM.
How did Grexit Make Me Bullish?
The fact that Europe was finally starting to face up to the possibility of Greece exiting became a positive for me. The people I have spoken to at the German Ministry of Finance and senior Greek politicians all admitted that until recently almost no time had been dedicated to what a Greek exit would look like.
In spite of all the negotiations around the bailout, neither side had taken a serious look at what it could mean. Both side were living in a world of assumptions about how it would play out that had no basis in reality. Germany somehow had this vision of not having to make good on all its guarantees, that the ECB would get paid, and the “firewall” would stop contagion. All of those are laughable assumptions yet basically is what the “core” of Europe believed. So on June 2nd when we wrote our widely read Why a Grexit would make Lehman look like childs play piece, the basis for the bullish view was formed.