Jim Trippon's  Instablog

In case you don't know her, I am of course referring to Angela Merkel, the Prime Minister of Germany.

While much of America has spent last week focused on the commemoration of the 9/11 tragedy, or on the latest presidential job speech, stock markets in Europe & Asia continue to struggle due to worries about European sovereign debt. This is no surprise.

What we are watching in the US and Asia are markets in search of a direction. Individual investors all over the world are getting extremely impatient watching the steady stream of bad economic data. They keep waiting for the good times to return, wondering when the economy will turn around for the better, but bad news just keeps rolling in... week after week. This is good news for us as investors.

You see the last three months we have witnessed remarkable volatility. Although it seems we have been in a trading range, actually it has been a see-saw with a downward bias. There have been two reasons for this.

On one side is the huge group of investors holding cash, who have been in this posture ever since dumping stocks in early August. These folks are just looking for a reason to get back in the market. Every time they think it's the “right” time to get back in, they cause a 300 point one day run up, like we have been seeing the past three weeks.

On the opposing side are the investors who are looking at the economic data from the USA and Europe. To be honest it looks pretty bleak. So let's get back to Angela.

Greece is at a crossroads, but the Germans are behind the wheel. Germany has to decide soon (maybe this week) if they will risk losing their AAA credit rating to bail out the Greeks budget deficit, again. For weeks European stocks markets have held their values (for the most part) betting the Germans would once again open their wallets for their free spending baklava loving friends down south.

Why is this a crisis now? Well as you probably know the Greek economy is so weak, that its government has no possible way to make their upcoming debt payments. The Greek tax revenues vs. debt payment imbalance is just too great. So they have been looking at the strongest countries in Europe (spelled GERMANY, FRANCE and FINLAND) to bail them out.

Finland started the latest avalanche of confidence by insisting that the Greeks put up collateral before any more Greek borrowing from Finland. Now the Germans look like fools not demanding the same and their government is taking the risk of a Greek debt default pulling Germany down, so seriously, that the German's minister to the European Central Bank resigned this week.

If the Germans do not open their wallets to Greece once again the risk is that the entire EU currency system could collapse in a matter of weeks. If that happens, it will make the market meltdown of 2009 look like a sunny day at the park. Up until now, everyone ASSUMED the Germans would once again just open their wallets. But the Finnish move and the resignation German's minister to the European Central Bank (both of which are not being covered much in the US media) could be a game changer for your portfolio.

We are dealing with this situation by making big changes in our portfolios to profit from the panic. I will talk about that more in my next email.