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Muscle Memory


The Daily Diatribe: The Greek debt situation is conjuring up some serious muscle memory for me.  To those of you asleep for the last three years, you will not recognize the European financial crisis currently underway. It is widely accepted that Greece may default on its sovereign debt unless the EU bails them out. Sound familiar? The National Bank of Greece is trading under three dollars per share. Sound familiar? If Greece defaults, it is widely expected that Portugal, Spain, Ireland, and Italy will follow suit. Sound familiar? The only thing missing is somebody saying something about “too big to fail.”

The fly in all of this rather unseemly ointment is Germany. It appears that the EU was prepared to offer the bailout and Germany is balking at the deal; those pesky Germans. Rest assured this mess will not pass. The world can ill afford a European fiscal disaster. For that reason, expect that the world economic community will pounce on Angela Merkel and close this deal before any further damage is done.

Two things come to mind here; muscle memory and the tail wagging the dog theory. Can we do away with that nonsense? Our problems surfaced three years ago, and now Europe follows suit; following us, I might add. We are the dog and they are the tail. There is a lesson in that whenever you want to hear anybody disparage the United States and its economic dominance. While we clearly have our social issues, let nobody misinterpret the strength of the US business model.

The world would do well to remember that. While I am at it, Mohammad El Arian, the chairman of Pimco needs to stop waxing poetic about the sagging fortunes of the American stock market. I would love for all of you to at least learn to connect the dots. Pimco has the world’s largest bond funds. I should point out that when stocks go bad, the money runs into bonds. If money runs into bonds, El Arian, Bill Gross and all the other Pimco blowhards do very, very well. My point is that Pimco never, in all of my 25 years in the stock business, ever told anybody that equities were the place to be. It’s all bonds all the time, and that is as self-serving as it gets.

In the meantime, do not misinterpret my musings as a buy signal. We are at a significant place in the market. The S&P 500 index cracked 1150 interday and if it closes there, we have a threshold that would suggest technically that the market could continue to fall.

Be that as it may, I don’t time the market. I am always looking for value so that I can position growth clients in underpriced stocks. My research shows a bunch of them. However, I am taking the precaution of perhaps buffeting the downside by selling some covered call options.  That has served me well over the last couple of years, and that model has not yet changed. I still think economically, we cannot help but move sideways given our debt and deficits.

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