If you think the worst is behind us when it comes to the Eurpean debt crisis, Think Again!
Yesterday there were more riots in the streets of Athens as labor unions violently opposed a new proposal that would raise the retirement age and cut payments to pension recipients. It’s understandable that citizens would be discouraged at losing generous benefits that had been promised for years, but one has to stop and think about how realistic these promises have been.
Whether Greece is able to fulfill the labor union’s expectation of generous payday and retirement benefits or not, the international investing community continues to expect high levels of risk. The risk of a Greece or Spain default is a very serious issue with global repercussions. Many European banks have significant exposure to Greek and Spanish sovereign debt, and even the expectation of a default can cause illiquidity as banks refuse to lend to each other and capital ratios are unable to be met.
As a trader in primarily US based companies, the European debt situation is still a major concern. US markets are increasingly keying off of international events including Austerity programs, Chinese economic reports, and trends in emerging markets. As correlations between geographical regions increase, I am finding few places where long-term investments make sense right now. There is just too much risk of loss.
So at this point, the best course of action continues to be one of defense. Consider holding elevated levels of cash in your account. If you are comfortable shorting stocks and understand the risk, there are plenty of negative fundamental and technical situations that can be capitalized on. IRA accounts can consider buying puts or inverse ETFs.
There will eventually be opportunities to buy equities with high levels of conviction. But today’s market allows for very little confidence and requires patience and risk management regardless of your time horizon and risk tolerance.