Market Commentary: Not Much To Add Since Yesterday

From Peter Tchir of TF Market Advisors

Not Much To Add Since Yesterday

I think it is worth repeating that we have entered a new phase of risk aversion. Banks that had been complacent are now hedging so they can show no exposure to PIIGS, or to European Banks, etc.  The implications are that we see credit curves flatten, or invert.  We will get fewer short squeezes, at least until October, and there will be more rumors of banks having difficulty securing short term funding.  Yesterday's write-up talks about it more. 

Europe was wider again early this morning, had a nice relief rally, and has since sold off again.  Main went to 188, back to 178 and is back to 187.  Needless to say liquidity is virtually non existent.

It is hard to figure out how much for the FHA lawsuits is being priced into the market.  Right now it feels like the US is reacting to Europe and hasn't been able to focus on its own issues.  Greek short dated bonds are impossible to ignore as they imply likely default in the near term.

The bulls seem to be hoping for some form of government announcement to save the day.  The hopes range from fanciful - Eurobonds (which are not happening) to too little - Obama jobs (been there done that) and Operation Twist (no balance sheet expansion has limited impact on other asset classes).

We may see a rally if German court agrees that EFSF is legal, but since EFSF has been priced in (multiple times) that rally is unlikely to last.  The ECB may announce rate cuts, but the reality is rates are pretty low, and cutting short term rates from here isn't likely to do much.  Rates are already low, and saving 1% of some short dated debt isn't going to let the weak countries turn the corner, nor is it enough for Germany and France to show a rebound in economic performance in the near term. 

If the ECB or EU provides some form of guarantee for the banks, that may work for a bit longer, but unlike 2008, the solvency of countries is in question, so investors will question how useful that guarantee is. 

Ultimately, short stocks seems far safer than long, at least until we get below 1,100 on SPX.