Curbing Our Enthusiasm, Increasing Our Bet…
Moving closer to the EU Summit we are are curbing our enthusiasm and expectations of the substance of the deal but increasing our bet that it will be just enough to unleash the balance sheet of the ECB to backstop Italian and Spanish bonds. This should catapult the S&P500 over the 200-day moving average and the great year-end chase will be on.
We’ve made binary trades before and lost big. The “Russia to nuclear to fail” trade where we bought the country’s dollar denominated Eurobonds all the way down from 45 cents to 18 cents, which proved right as an investment as they didn’t default. Still, it was a bad trade buying too early.
We could be wrong on this one and may have too much faith in the Eurocrats, but think of consequences if we are wrong? If the EU fails here, it will 1931 all over again and will put the “Great” in this rolling depression/recession. Therefore, we bet they’ll come up with just enough to let Super Mario do his thing. After that we’ll reassess and look at the long-term consequences, but hopefully 100 S&P points higher.