Buy Stocks Now, As PIIGS To Escape Slaughter

| About: SPDR S&P (SPY)

With the Greek elections, the second of the sort, due this weekend, bond investors have been leading the PIIGS to slaughter this week. Rising bond yields in Spain forced the pivotal European nation to seek assistance last weekend, which in turn drew a downgrade by Moody's this morning. The threshold to the ultimate disaster may soon be breached, with Italian bond yields rising sharply today. But never fear, dear readers and panicked investors, because the Greek result seems set up for a relief rally.

Spain's sovereign debt rating was cut to one level above junk today, to Baa3 from A3. Moody's said Spanish risk was heightened due to the risk of a Greek exit from the eurozone, and resulting in "the full catastrophe." This is, of course, the market's worst nightmare because if debt costs increase across Europe's most indebted nations, it might force the EU's leading backers (Germany and France) to re-evaluate whether it's worthwhile for them to continue carrying their cross. Thus, it could be the end of the eurozone as we know it or, worse yet, the end of Europe's united economy. That's why stocks have been on the downslide until now.

Wall Street is bothered by the Spanish 10-year bond rate above 7% today, up markedly from yesterday. If Spain cannot borrow at a manageable cost, it will be in need of the same sort of rescue Greece keeps receiving. The problem here is, of course, that the Spanish economy is much more significant than the Greek feta foray version. Spain represents the world's 12th largest economy, but the disease would likely spread from there, which is terrifying Brussels today.

Italy is even more important than Greece or Spain, and while Italian 10-year bond costs hardly moved today, the nation's just-issued debt was sold at a much higher cost. Italian three-year bond yields were up more than a percentage point, while seven-year bonds almost reached a point higher as well. This is the worst-case scenario that the world has sought to mitigate since the Greek crisis began. As a result, European shares were lower Thursday morning, with the Euro STOXX 50 Price EUR Index down 0.3% nearing the day's close; but that was a bit better than the start of the day.

In fact, the Vanguard MSCI Europe ETF (NYSEARCA:VGK), iShares MSCI Spain Index (NYSEARCA:EWP), and the iShares MSCI Italy Index (NYSEARCA:EWI) are each markedly higher Thursday. Even the Global X FTSE Greece 20 ETF (NYSEARCA:GREK) is up 9.5%. Heck, the National Bank of Greece (NBG), Coca-Cola Hellenic (CCH), Hellenic Telecommunications (OTCPK:HLTOY), and Marfin Investment were all higher by a large margin. So what gives, then?

A bit of interesting news reached the wire over the past couple days, but it was largely overlooked by the market. The head of the disruptive Greek political coalition Syriza, Alexis Tsipras, said that he would not lead Greece out of the eurozone. Well, that would seem to defuse the ticking time bomb, because the market's greatest concern has been that Greek political change might alter the course for Greece with regard to its European monetary ties. That's exactly what speculative smart money is betting against today, sending these shares in what would seem to be a counterintuitive direction, which is higher. That's the direction I would advise aggressive investors to take, as well to participate in what should be a super relief rally.

I think the same is in store for the S&P 500, with the SPDR S&P 500 ETF (NYSEARCA:SPY) off 5.7% since the start of May. Guess what? It's up Thursday morning, and I'm looking for much more over the coming hours and days. This is a forecast that runs against the tide, so I'm out on a limb here. Give an unbiased strategist some respect for the guts to make such a call, and credit if my forecast proves true.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GREK, NBG, CCH, SPY, VGK, EWI, EWP over the next 72 hours.