Where did all that green go? I guess it went out of style and red is the latest fashion trend. The VIX (volatility index) is at the same levels as when US banks were nationalized! I’m sure you all heard of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) which are wrecking havoc in Europe. Not only has the Euro slumped to worrying levels, but confidence in the Euro region has been shattered. All that while China quietly slipped into bear market territory with the A-share index down more than 20% from its highs. China’s stock market slump may only be in its initial phase as the tightening process is only in its infancy. The troubled Euro region being the destination of 35% of Chinese exports only adds insult to the Chinese injury. Couple this with a negative currency effect as not only has the Euro depreciated, but the Yuan is pegged to an ever-increasing US dollar.
I meant for this post to be short, but my rhetoric is never-ending. Anyways, I believe China has acted as a decent leading-indicator to world markets in past downturns and this bears watching during the current cycle. China bottomed in November of 2008, ahead of US markets lowest point in March of 2009. It also topped-up recently and is currently in bear market territory. Should the US follow? There is a good chance, especially with the PIIGS minefield waiting to blow-up! Over the weekend, a small Spanish bank was seized by the Spanish government. What if a big bank in Europe starts to have issues? What about the Greek restructuring joke proven to be not so funny come September as tourisim revenues are down and no savings are made. Did we solve the credit crisis or did we only transfer it from corporate to sovereign government balance sheets? What if Greece was Bear Stearns, and Lehman and its sibling troubles are ahead?!
In finance it is always a matter of risk vs reward. I personally wouldn’t take a 30% double-dip downside for a 5% trading upside. I personally initiated S&P 500 (SPY) July puts with a $100 strike to hedge myself. Remember: Don’t get caught picking up pennies in front of a steam roller!
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Loading ...Tags: Bear Market, China, Euro, Europe, Yuan
