So was today the beginning of something big? Who knows. I liked the close and the fact that it was below 1185. I sent this email to a friend last night:
"We are close to a tipping point (if we haven't reached it already) where this widening is only going to cause more widening as banks are forced to sell and margin calls in one market is going to cause selling in another and a nasty cycle. I tend to think there will be something to calm this down for a few weeks or months before it really hits sky high but the fuse is becoming shorter."
Greece will not be the powder keg. The U.S. markets have been ignoring for that reason. However Greece can be the match that lights the powder keg if the contagion isn't contained ASAP. The move down today was not so much about Greece as the contagion.
This is an email I sent out earlier. I still don't think Germany will do a direct bailout.
"As I said today the more likely outcome is no "bailout" but agreed upon debt restructuring where banks write downs the loans to Greece by say 30%. Greece has 1 billion in loans and that is reduced to $300 million. The banks take a $300 million loss. To the extent the banks are in trouble because of capital Germany funnels money to German banks. There is still no bailout. No legal challenge issue. And probably more politically doable. The other possibility which is real is that the IMF comes in and just does the whole thing."
That scenario is not without risk either. Who all owns Greece debt. What does an agreed upon haircut mean. Does it tip over another institution in some other country and that starts the Chain reaction? The other concern is rumors of a major Greek bank failing. That has profound impact.
People are comparing this to Bear Stearns and I still think it is a little smaller than that. More like a New Century Financial in 2007.
Anyway, we need to hold 1200 tomorrow on any rebound. That would be about a 50% retracement. Anything else and it starts looking like a one day wonder.