I awoke this morning feeling like something of a villain. It was like I was rooting for the super villain in some Marvel action movie, or for an older crowd….. KAOS in that classic TV comedy Get Smart. No I didn't have a sinister master plan, or a bunch of destructive gadgets…..instead I was hoping for something out of my control, but no less painful to other people. I awoke hoping for a crash in global equity markets.
In reality I know a global crash is fairly unlikely, but I crave the type of volatility that creates/unlocks opportunity. No I'm not a doom sayer, nor do I believe Greece's troubles are actually globally significant. I see Greece more as a symptom than a disease. The root disease is cheap credit, leading to the miss allocation of capital. To be more clear, it appear to me that a confluence of forces are converging to roil global equity and debt markets. At the same time Greece has ordered their banks closed for the week, and instituted capital controls, China's central auditor formally announced that regional governments and state run conglomerates had "cooked their books" to the tune of tens of billions of non existent profits in recent years. Then, on the very same day, the Governor of Puerto Rico announced that the island is in a "death spiral" of debt and can not possibly repay their current debts given a shrinking tax base and over spending. Meanwhile, investors have been gearing up for the Federal Reserve to raise interest rates in the fall….margin debt is at all time record high levels in the US……and to top it all off….US equities are currently in year 6 of a bull market. So to recap, debt troubles at the same time as geopolitical risk, and a stock market whose run is getting a little long in the tooth. Sounds like potential opportunity to me! Continue Reading »