The T Report: Paradiso by Lampa de Dashboard

Posted by on Aug 18, 2012 in Uncategorized | No Comments

I Gotta Know Right Now    

Last call is approaching in Europe. It’s getting late, everyone is getting tired, the dance floor is crowded and people are making their move. I can’t get that image out of my head and I can’t help but think that Meatloaf, of all people, sums up where the market is right now:

I gotta know right now
Do you love me?
Will you love me forever?
Do you need me?
Will you never leave me?
Will you make me so happy for the rest of my life?
Will you take me away and will you make me your wife?
I gotta know right now!
Before we go any further
Do you love me?
And will you love me forever?

Let me sleep on it
Baby, baby let me sleep on it
Let me sleep on it
And I’ll give you an answer in the morning
Let me sleep on it

I would have difficulty coming up with a better summation of where we are in Europe than these lyrics. And I certainly could conjure up the vivid mental imagery and soundtrack that comes with this song, but it seriously seems to be where we are. Rajoy wants something, and Merkel is potentially willing to give it, but only if she believes Rajoy is serious. And we do need an answer, soon.

A great deal of progress has been made in Europe, at least in terms of attitude if not action, and they have the power to give the can a huge kick. Working together, taking some risk, they can really crush talk of redenomination risk, push off default risk, and buy time to attempt some fixes to the economies and budgets. But that will require real commitment and effort, and while I think they are there, I remain nervous, at least in part because Spain in particular seems to feel entitled, and because the court case in Germany may be problematic, and I fear we are only starting to hear about opposition to proposals. That parties and individuals are going to attempt to make a name for themselves by arguing against the status quo.

I continue to think Europe is the key, but at these levels, have backed further off of risk even in our favorite places such as Spain, Italy, and banks, and are now negative on U.S. stocks. This report from Friday summarizes our changing view on risk in more detail.

As people continue to point at low volumes and low volatility as a sign of imminent collapse, it is worth reading a more balanced assessment of vix, vol, and vol. I am bearish here, but not because of the volatility and volume story, and if anything, the fact that so many are glomming onto that as a sign of imminent collapse of the markets makes me seriously question if I shouldn’t go back to weightings I had at the start of last week, when I was much longer.

Have a great weekend, and if nothing else, hope I left you with a song in your head that might bring back some good memories.


Twitter: @TFMkts