By now you know that S&P put 15 Eurozone countries on credit watch with negative implications. This was of course not a black swan but simply the latest in a long unfolding saga. The point of today’s brief post (I have an incredibly hectic week) is to isolate the ongoing thesis that the worst financial crisis in 80 years for both the US and Europe is going to take a long time to fully unwind (unravel?).
While it may no longer correct to say it is early days in this, using the baseball analogy I would say it is the middle innings at most and to take the analogy a little further it is the middle innings of a Red Sox-Yankees game which tend to last 4.5 hours as opposed to the normal three hours.
I have had and continue to have serious doubts about valuation arguments for the most affected market segments. As I have been saying all along there will be trades to be had for those who are nimble–XLF is up 11.7% in the last five days–but a nice lift does not mean things are fixed fundamentally. At some point the valuation argument will turn out to be correct but for now the news continues to be bad without even a vague notion of what a resolution might be.
Yes buying when there is fear and uncertainty is more than valid, there has been fear and uncertainty surrounding this for several years and “opportunistic” purchases has amounted to catching falling knives and it has worked out badly. Whatever positive argument anyone is making today, the same argument was made a year ago and two years ago and three years ago and four years ago and has been consistently wrong fundamentally.