19 June 2011

If Greece defaults and no one cares, will it make a "Lehman?"

For about a year, I've thought that Greece and many other countries with insurmountable debt should just default.

Granted, from a Libertarian standpoint, this doesn't pass the "every man shall do as he says he will" test. However, the money lent was created out of thin air to be lent to the Greek government. It was not truly "Capital" that belonged to someone else - well maybe 1/8th or up to 1/40th of it was. It was merely a ledger entry allowed by fractional reserve banking. How can any person, any government or any corporation pay back money that never existed until it was lent and spent?

Anyways, the slow motion train wreck of Greece has allowed most of the passengers to bail. NBG is already 1.34 a share. I'm not sure, but I'd assume most people/banks that owned the debt have already tried to sell it for whatever they can get - probably the reason new auctions are fetching 25%+.

Lehman, for most of the world, was a huge surprise - it slowly crept up and them bam, the whole world changed over night. However, a few of the people that paid a lot of attention to bank balance sheets knew it was coming and predicted such - especially one of my mentors who also predicted the BSC implosion.

Greece has now given us almost a year and a half. Slightly like Argentina from 1999 - 2002.  Make sure you notice the "poverty levels" before and after the default.  Also, pay attention to the statement that the gap between the top 10% and bottom 10% widened between 2001 and 2005 despite a default.  I was in high school in 2002 so I really paid no attention to this.  I'm sure some people reading this remember it. Keep in mind the tech bubble was also actively imploding at this time. 

 They defaulted in mid January from what I can find.  Note how the market actually bottomed around that time and headed up for a few months.  Another case of "buy (sell) the rumor, sell (buy) the news?"  The market just isn't as simple as reacting to events after they happen.  However, I'm not bullish.  I don't think things are good, and I do think that Spain will be the surprise of the summer.  I'm just trying to be realistic that nothing goes in a straight line.

 Medium term - Oversold

 Short term - working off Oversold condition.  The market has tried to get a foothold and it has been coming up short lately.

I circled instances since 2007 where the McClellan has declined for more points than it has now.  It has currently declined around 2500 points (2000 to -500).  Also, notice the white line on my medium term TSV marking previous extremes.

Best of luck. Trade with caution to both sides, and remain nimble.  VIX still remains spiked out of my descending triangle.

"The ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it."
Henry Hazlitt