Markets Reacting to Headlines

Greece is the word… oh yeah, that was spelled differently! The word Greece however, did push the markets lower overnight as the worries returned on no deal between the parties involved. I keep having this nagging thought run through my mind… What is the worst case scenario, and does it really change things in the world economy? Bottom line… three years from now, NO. If anything is will make it better over the long term. Sometime in life a fresh start with a clean slate is the best thing that can happen. It never feels good when it is happening, but when we start new and refreshed it turns out better more times than not… if we take advantage of the opportunity to start over. Maybe this is what the world leaders need to see from Greece versus the horrible doom-and-gloom being broadcast. The last three years have been gloomy in Greece if you ask me, but then no one did. Regardless this is an issue for the markets around the world to respond to.

Following are some other headlines worthy of note:

“Protect you assets in the face of a correction”. This fear mongering is an issue on the rise in the media and from those wanting people to buy something. Are we in the midst of a correction? NO! Is there one in process? NO! Could one develop in the coming weeks or months? YES! That is always the case and that is what stops are for… that is why you use exit point on positions regardless of time horizon. Corrections don’t happen in one day. There are times it feels that way, but they happen over periods of time. You have to prepare for the worst, hope for the best and manage the risk day to day. Plain and simple… don’t read these articles or headlines.

“Bonds continue to sell-off”. Yes, they do. This is an issue that has been in play for the last two years. As stated above… know where the exits are and follow the path as you move forward. Stops are in play from my view and holding bonds currently is not the best course of action unless you have hedged or protected the positions. The global bond picture is not looking any better as prices fall around the world and rates rise. As the quote from Mr. Roosevelt goes, “when the horse dies, dismount!” When it comes to bonds the time to dismount has been in play the last month.

“OPEC promises to do whatever needed to keep market share”. Big surprise again. Sometimes when reading headlines I wander… is this really news? Isn’t it obvious that like a company OPEC would do whatever needed to maintain their share of the oil market? It seems obvious to me. They have protected oil prices for centuries for this vary reason. Why would they not do that now. What does this promise mean? From my view, lower oil prices as they keep supply high to take more production offline or even bankrupt companies that cannot compete at lower prices. Crude move back below $60 a barrel and could move back near the bottom of the current range as supply data show increases not decreases. That validates what OPEC is stating… the obvious. Sometimes the most obvious outcome is staring us straight in the face.

“Banks are Back!” Really? The financial sector continues to make progress, but they continue to fight the battle of lawsuits and regulations that are strangling profits. I am not defending the sector from past sins, but the reality is they have a big battle still in front of them. The best piece of news of late is interest rates are rising. This helps banks relative to loan spreads and they are more profitable as a result. The question is how much they will be able to lend in the face of a weakening consumer and economic picture. I like the banks (KBE) and especially the regional banks (KRE), but you still have to manage the risk of the position. As with any investment we can never assume anything only manage our beliefs in light of what the market does going forward. The sector did break from the longer term trading range and is now in position to move higher short term. We will continue to take what the market gives, but manage our risk in light of where we are going.

Plenty of news, plenty of speculation, but we have to have plenty of patience and focus as we manage our money day to day. The volatility is rising… this has been happening intraday over the last month… if the VIX index makes a move above 15 and heads towards the 20 level the downside risk of this market short term rises significantly. Take what the market gives, but manage your risk diligently.