Party First, Panic Later

World markets were quiet, but on the lower side, though Europe continues to put on a brave face and take bad news in stride. Both Greece and Portugal saw their debt ratings cut by Standard & Poor’s, with more downgrades likely still to come. Those markets barely flinched, however, and now it looks like there are early indications of potential banking problems in Italy as well (bank stocks there declined 5% due to a just-announced $1 billion capital raise by UBI Banca). Europe’s blasé attitude supports the observation I made a week ago, that markets hardly worry about bad news because they are fixated on the bailout to come. I must say, it is a strange sight to behold.

Here in America, the market was higher early on, gaining just over 0.5% by midday. The afternoon saw the indices continue their upward march, closing near the highs with a gain of 0.75%, plus or minus.

Away from stocks, the dollar was mixed, with the yen continuing to weaken in the wake of the recent intervention (and with the end of Japan’s fiscal year upon us). Oil was flattish. Bonds were slightly lower, as were the metals.

Either Way. . . and With Good Reason

We will soon be heading into corporate earnings season, and it will be worth watching how the news is discounted. By that I mean, if folks are inclined to ignore poor results, they obviously have a convenient excuse in the form of the earthquake/tsunami/nuclear disruptions from Japan. On the other hand, if the market is in the mood to sink, it may have some news to precipitate that.

When you layer that onto the fact that QE2 is ending, the troubles with the PIIGS, and MENA chaos, the market has plenty of reasons to decline if it wants to. Thus far, though, machismo has been the order of the day.

Waiting to Fight the Downhill Battle

Friends of mine who have been short sellers have almost totally given up, as it is impossible to get stocks to decline, yet the early signs of deterioration are clearly there. Money printing has made it all but impossible to practice the art of short selling — something I was afraid might come to pass — which is why I closed my short fund two years ago this month. However, never in my wildest dreams did I expect life on the short side to be as difficult as it has become.

Having said all that, there may be an opportunity in the second half to make money on the short side. I believe it is still early yet and, as I noted above, perhaps we will learn something useful as we go through earnings season.

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About abwehra group

The Art&Science of Trading Gold
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