Submitted by Peter Tchir Of TF Market Advisors
Unexpectedly Managed Expectations
Have the central bankers and politicians run to the rescue so often that no investor is willing to bet that they won't bail the market out again? Does everyone now fully expect a bailout at every sign of weakness?
Bernanke in particular had been a fan of managing expectations. But has he managed them so much that all that is left is disappointment when he underestimates how much is already built in?
Have expectations of a bailout become their own worst enemy? After the stories late last week that preparations were bring made in case of a Greek default some politicians may have been worried how the market would react today. They have to be relieved at the relatively decent performance.
I believe the market is only being supported by the expectation of more bailouts. I also believe that some politicians may see today's action as a sign that a Greek default is largely built in. I'm not sure whether that is ironic or a paradox but I am pretty sure the markets relative strength today is setting itself up for a big disappointment and the market will be shocked when Greece defaults and politicians will be shocked it wasn't priced in.
You know the first time someone plays poker they are afraid to bluff. The second time they decide bluffing is great. By the third time they are so confused about who is bluffing and when that they might as well just hand their chips to the best player at the table and save everyone the time and effort or taking the chips. I think the central bankers and governments have gotten so confused they are bluffing with a few low off suit cards and don't even realize the cards are face up. A few polite people are choosing to ignore the cards. The governments and central bankers may still win but it will all come down to the luck of the draw since the odds are stacked against them.