What I’m Watching This Week – 18 March 2013

Back to the Big Picture

I’m back after a self-imposed hiatus.  Call it a brain break where I took out the tissue, gently massaged it and placed it back into residence.   It was a long overdue.  And now back to our previously scheduled program.

All eyes are on Cyprus this morning as the proposed tax on savings accounts (10% on accounts over 100K euros and 6.75% on accounts below 100K) has brought the European debt crisis back into focus.  Who has culpability in this situation?  Guess who… the banks.  Leading the parade, are the banks in Cyprus.  With the banks in Greece and the Euro Zone coming up quickly behind; but wait, this is turning out to reveal a parade to rival Macy’s Thanksgiving in length, pomp and circumstance.   So what’s the knee jerk reaction to a tax imposed on deposits?  Ahem, you are sitting down aren’t you?  Since the banks are closed in Cyprus today, the citizens can’t dash to the bank and take their money and run.  Some other day perhaps but not today fortunately; and what if other EU countries decide to adopt this type of tax in order to get help from the Euro Zone, aren’t bank runs in other countries a serious probability?  Ultimately, March Madness has been redefined and this is what the week will be all about.  Brace yourself ladies and gentlemen; we are only witnessing the pre-game warm up.  Tip-off is just around the corner.

The U.S. market is a bit extended and susceptible to a necessary pullback, I don’t think we are entering into correction territory.  Why?  We may be looking at going on the offensive while Europe plays defense.  There will be movements of capital into the safest areas.  The EU doesn’t seem to be that warm and fuzzy place today; Switzerland maybe and the U.S. definitely.  How does this affect you, the small investor?  You have two choices:  Door number one – Bet that the pullback will be short and shallow for the near term and ride it out (but smartly take some of your profits off the table).  Door number two – prepare for a deeper and longer corrective action.  I’m going with door #1 along with moving some assets into the alternative space as a hedge (insurance in case something goes bad).  Yes, if the market turns on a dime and goes higher, I would have missed out on some performance but if it does not, I’ll be in position to offset some or all of the losses in positions more effected by market swings.  If the S&P 500 moves more than 5% to the downside, I’ll consider door number two but I don’t see a confirming trigger to set my hair on fire (I’m darn near bald anyway) and run for the hills, carrying all the gold, guns and canned goods I can.  Plus my time in the US Army completely ruined the whole camping aesthetic for me.   I’m no longer a fan of living underground, digging holes and living with moles.

I remain optimistic.  I’m keeping my eye on the big picture of the American economy continuing to improve, Washington has become a rather large speed bump, but growth is there, regardless of the political mayhem.  The new European worries are unsettling and deserve a watchful eye as we observe the EU react but I’ll remain steadfast, cautions but entirely optimistic.  Have a great week!