Sunday, June 26, 2011

The Easy Solution

Had a crazy "work on the house" day. Moved tons of furniture that we are getting rid of out to the garage, of course most of it was on the second floor and had to be brought downstairs. Mowed the front and back lawns because it was finally dry for like 3 hours today, woo hoo. Cleaned up the den area where the magic of Economic Disconnect get done. Finally settling in for the evening. The open of "True Blood" is tonight and my wife is a monster fan so I will be watching that in case Anna Paquin is naked again, lol.

The Easy Solution
I was thinking about this Greece debt thing and it finally hit me what the easy fix is. Good thing is not only will this work for every other problem the markets are having, but it has already been used to great effect as well. I have no idea why this has not happened yet.

So Greece is having issues because they are broke and spend too much and take in too little. Who doesn't? The problem is Greece is part of the Euro and so cannot just print their way to prosperity, but must work withing the Euro framework. As Geek debt can only be issued to "real" investors at rates that are far to high (over 10% on the 5 year I think) for the country to pay, the ECB (Euro Central Bank) makes their own loans to Greece at low rates (more around 3-5%) by issuing new money and other games. This way Greece can take longer to not be able to pay and by some miracle maybe will be able to years later.

So why not just cut out the process of it all? In the new world market, Germany pays say 2% for 5 year debt, so Greece should pay 4% because they are having issues. By decree the "market" price for Greek debt can only be sold at 4%! Problem solved! This can work for any problem out there where a free market is saying risk is not being paid for, just eliminate that entirely.

But GYSC, won't the bond vigilantes get mad? Won't market players shun Greek debt because of the risk and not making enough to justify it? They can try it. But where else are they going to go with their cash? They will take what they are told and like it, especially if a guarantee is behind it. If we are going to play fairy land pretend, we might as well get to it in size.

By various routes all debt is being artificially fixed at some price not set by free markets anyway, so let's just stop all the games. The central banks of the world can set prices wherever they feel is correct, and market players can take it or leave it. If they leave it in droves, the central banks just buy it all anyway, so there is no difference here. The Greek debt games is a sick pantomime of silliness anyways, why not take it to the next level? I am right about this because anyone using their own money will not loan to Greece, but the ECB/IMF will buy all the debt anyway. The Parliament vote is a joke, makes no difference what those clowns do, this is going on.

Market Operations
It is homework night but I think I would have to see what happens tomorrow before I could place positions anyway. Tonight I will work out a watch list with targets and ideas, then tomorrow see what I think will work. I am still in SH and PSQ, and made a nice win on MAKO this week. It's annoying but a bunch of the stocks I worked on over the last 2 Sundays have popped really nice (WSTLA, HNSN, CNU) but what can you do.

Have a good night.


Johnny Jax said...


Anonymous said...

"getyourselfconnected said...
If i am correct who you are then yes you did get constructive on markets at a good time. Would love to know what metrics are worrying you now. I am neutral leaning bearish until qe3 arrives. I still think now is quick hit time not a great time to get aggressive either way.

June 24, 2011 10:46 AM"

Get - the things that worry me now are mostly the leading indicators, and a few coincident ones.

As you may recall, 2.5 years ago, I pointed out how some of them went from "terrible" to "less bad". Of course, you (somewhat) Jeffy (bigtime) & others chastized me for focusing on "meaningless" data, questioning repeadedly "how is less bad bullish"?

Well now the shoe is on the other foot. Many of the same leading indicators have gone from good to "less good", and a few (i.e. PCE, ATA) have actually turned negative again.

Mind you, at this point its hard to tell if this is merely a "slowdown in the rate of growth" or actual negative growth like we saw in Late 2008 & early 2009. Right now, I am on the fence as to whether this is the former or the latter. Still, as was the case then, I am certainly paying attention as the data (for the first time in years) indicates there could actually be trouble on the horizon.

getyourselfconnected said...

yes I remember the "second derivitive" stuff very well. I think what I argued was that the aggressive price rise in stocks was not backed up by the better data, not for a while anyway. Then things got caught up, but then equities ran far ahead again. The data is getting less good right now, and maybe a negative PMI print this week would be a big signal. You are right to call me out on how I was thinking back then.

Anonymous said...

No worries Get. You were always a bit more reserved with your calls than was the uberbearish Jeff.

In any event, you are right that things has not caught up back then. Thus, I was relying on the market doing its 6 months into the future thing and assuming a catch up, which did happen.

Its a leap of faith every time, and sometimes it doesnt catch up (either in the bullish or bearish direction). Still, I realized along time ago, the market is generally alot smarter than I am...