“There is no counter party risk and our firm is well capitalized” -Alan Schwartz, CEO Bear Stearns
We all remember that shallow promise a day or two before Bear Stearns rolled over, went belly up and sold for a two spot to Jamie Dimon and JP Morgan. Not many people know this, but Bear was hated on “The Street” and there was no love lost when it sank gently into the good night. Back in the day, when Long Term Capital was going belly up, the bulge bracket firms and other hedge funds got together and tried to save it. It was good for everyone to save it. Bear Stearns opted out, basically said, “not our problem”. People didn’t forget and loathed the Bear after that.
I digress though, as my point is that the smartest minds on planet earth never thought a bankruptcy would happen, they also never thought that counter parties would actually close the shutters and stop taking risk with Bear Stearns, when it happened it was too late and the market was crashing.
Same thing with Lehman right? It could never happen. Well it happened. Very few called either event. The ones that did made a name.
So now I wait. I wait for someone to tell me now, how and why the slow motion train wreck that is Europe will ever be resolved. Europe, like the U.S., has become expert at putting band aids on cancer. Death by a thousand paper cuts though if you ask me. The root causes of this pain are so deeply rooted that band aids wont work. The stump of this dying tree has to be ripped from the earth and replanted. That will take decades.
Why should I believe any career bureaucrat about the rosy future in Europe or here for that matter? They were either dead wrong or lied outright on Lehman and Bear and everything else in between. Why is now different? To paraphrase Forest Gump, “Stupid is, as stupid continues be stupid”.
So what is next for the market? Well do you mean before or after Greece defaults? Because they will default. Will it happen next week, probably not. Will it happen as we get closer to autumn? Probably. By the way, Greece is only the enabler in this soap opera, I worry much more about Portugal, Italy and Spain which will also rollover if Greece fails, as I believe they will. Ireland is in time out right now, but will be back on the front page soon.
The market hates uncertainty and Europe has given us a truckload of it. One of the first band aids gets put on next week, but the cancer is growing.
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Be positioned. This isn’t going to get any easier. And yes, we will still have rallies.