Greek Elections

I waited until the Greek elections were in to write this.

What we have learned now is that Greece is indeed going to play hardball with the Troika and Germany. There is no telling what this might entail. My bet against the Euro which I described on Scutify in detail since October is now up over 200% since that time. It appears that the Euro is on its way to parity with the dollar much faster than anybody is forecasting. Most are saying it could happen in 2016. I think it could happen by August when Greece has to decide what to with some major debt repayments. 

My running thesis with regard to the Euro was that it is needed to help Europeans in the future, but has no business being as strong as the dollar given their demographics and comparative economic strength in the intermediate term. Many Europeans have a very hard time putting aside their tribal nationalism and I am not certain the Euro will survive. Regardless of whether it simply sinks to pairty with the dollar or implodes, it will continue to sink for many more months. 

The Greek situation is interesting in that they truly do not deserve much of a break as badly as they need it or the Euro needs them to get a break in debt. Many northern Europeans are very distrubed by Greece’s behavior the past century with regards to their finances and work ethic. This is not the first time they have been in major trouble. Greek democracy is not working, there is no doubt. Maybe it is better for all involved for the Greeks to default and leave the Euro if they are just going to chronically ignore their debts – or run them up over and over versus staying within a budget of some sane level.

Over in the oil and gas markets the Saudi Arabians are dealing with the death of King Abdullah and nobody knows definitively what their approach will be under King Salman. I think it is fairly clear not much will change in the short-term. Let me reiterate that while Saudi Arabia has no intention of giving up market share by cutting production. And, much of what they are doing does have to do with Russia, Iran and Syria. Keep an eye on the geopolitical for cues as to when oil prices will rise – which they will in the next few years. 

When oil prices rise, expect it when nobody else does. Early to that trade using options could yield returns well over 100%. Timing will be important though. Too early and the cost will overwhelm, too late and there won’t be worthwhile leverage. Make no doubt though, just as there was assymetric opportunity on the downside, there will be assymetric opportunity on the upside. It is just a matter of when.

In general, equity markets are overvalued in the United States. Ony commodity linked stocks are fairly to undervalued as groups. I have already talked about how I expect consumer staples to fall in price soon. Add to that list utilities, homebuilders and banks. The world is getting more risky at a very fast pace. 

I had believed the next 40% stock market crash would be after the next Presidential elelction. I am not so sure it will be take that long, although I still think 2015 looks more like 2011 than 2008.

Be careful out there. It is worthwhile given the topping patterns we are seeing raise cash and hold an increased cash position in an asset allocation. Virtually all of my clients are 20-55% cash. 

Stay out of the bad weather. 

Kirk Spano

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