This morning the stock price for Societe General is around Euro24.00 up 40% from its January 15 low of Euro 17. UniCredit saw its stock price double to Euro 4 from a low of Euro 2, granted the whole mess around its rights' issue clouds the picture a little bit but...
This morning looking at the VIX (Volatility of the S&P 500 -- or the fear index) is at a post crisis low (low 20s), yet none of the news is particularly good, the only explanation is that the ECB's LTRO program is working as planned -- boosting stock prices despite rising real uncertainty. The reality of Greece is hard to escape -- Greece's tax revenus are collapsing, the Greeks are reluctant to push reform any further (there is no doubt that Greece is very unproductive, it has been for years). Bottom line, we are looking at a very messy exit by Greece of the Euro -- if there is no new cash coming (budget deficit of 9.5% mainly because revenues have collapsed) then default will occur.
I don't think its appropriate to push the analogy too far, but no one knows the ramification of a Greek default, it was true for the U.S. Treasury when Lehman went under it is also true for Greece. Two other bits of very gloomy information hit my inbox yesterday:
- Last month Glencore paid negative shipping rate on its leased verssels. The vessel owners paid Glencore to use its ships -- granted it was not a large amount, still...
- Chinese electricity demand dropped by 7% last month (granted this was impacted by Chinese New Year festivities), still this has not happened in more than 10 years.
- Several friends in London are reporting massive salary cuts. All three work in some of the bank's most profitable groups, yet all three saw cuts of between 12% and 25% in their gross salary. Now, its important to note that when the bonus caps were introduced two years ago, many firms increased salaries to make up part of the difference. Clearly banks are not feeling that pressure anymore -- by the way, none of the three left their jobs, but this will have a dramatic impact on their discretionary expenses.
Despite this, and generally marginal earnings season so far, the markets are testing new highs. Some will say that so much bad news was priced in the market that a bounce was almost a sure thing, yet its not like the market are very cheap. P/Es of 13x are a little low but they are not "just emerging out of the recession" lows -- that would be p/e of 9x or 10x. Granted the S&P 500 seems to be "topish" but then I thought it was heading towards 1,000 -- not 1,300. Funny enough I don't invest with my head -- I leave that to my excellent broker. He convince me in early January that we should get back in the market -- that my hugely successful bond bet was not going to get any better, and that I should go back heavy into the market (with companies that have low debt and nice dividend -- and little consumer cyclical exposure), and I did, against my better judgment. I've now learned to differentiate long term trend and short term price movements.
Note: I have no China exposure or Glencore, I don't trade the VIX and