The market continues to be volatile. Equities seem to be going through alternate sell-offs and rips up on a consistent basis recently. It is almost like there is a tug of war between those that believe in the fundamentals of the equity market (Low PE's, great corporate balance sheets, easy financing, etc. …) and the credit markets which are primarily concerned about what is going on in Europe. In my experience, the credit market is almost always right and it is the primary reason I am very cautious here and have a high percentage of my portfolio in cash and have some short positions as well. I continue to pick up some long term bargains when a significant selloff occurs but I am holding most of my dry powder as I believe we will have lower entry points in the summer.
Signs of accelerating distress in Europe's credit markets:
- Despite the recently announced bank bailout, Spanish 10 year yields are closing in on the critical 7% level.
- Credit spreads between 10 year bonds issued by Spain and Germany are now at a post Euro record of 5.5%.
- Moody's again cut Spain's sovereign debt rating again on Wednesday.
- Moody's also cut their rating on Cyprus, ahead of that country being the fifth member of the euro to receive a bailout.
- Italian 10 year yields are following their Spanish cousins are into dangerous territory.
- The panic or realization (depending on your point of view) of the European debt crisis continues. Egan-Jones now calls for full scale bailouts of Spain and Italy by the end of the year.
- We are probably weeks away from a real "bank run" in Greece as withdrawals continue to accelerate which will be a game changer.
- Finally, whether Spain pays 7% or 17% to issue its debt; the country is doomed and will have to be bailed out in full in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
