It is now clear to me that Euroland (love that moniker Mr. Gross, but I don't agree that the cult of equity is dying) and the Fed have one thing in common. Over the past year they have decided to influence markets with language rather than action. Let us not forget that while the current tactics of inaction and blabber may be similar now, over the past five years the central banks' tactics have been very different. In the face of great crisis, the Fed and Treasury -with a gun pointed at their heads in the form of market collapse- took decisive action by rapidly expanding the Fed's balance sheet by more that $1.5 trillion dollars over a couple months whilst simultaneously lowering rates to 0-.25%. As a result the Fed eliminated the economic safety net in order to soften the crisis fallout and jump start the recovery. While they succeeded at the former, the latter was less than successful. However, it cannot be said that they fiddled while Rome burned. I don't think the same can be said of the ECB.
At this point, the EU has not experience the action forcing event that we saw in the U.S. in 2007-2008, but their actions to date dealing with the drop-in-the-bucket size economies of Greece and Spain (with all due respect, of course) do not give me confidence that they are willing or able to step in if need be. Thus far "actions" have been political. Markets have traded on whispers and weak follow through. Whilst this does not effect my long-term holdings, I am squeamishness that if a large event -credit or liquidity- hits Euroland they will not be capable of taking action. THIS TYPE OF CRISIS WOULD NOT BE A BLACK SWAN.
So, I now look for ways to protect portfolio value against a market correction or collapse stemming from Euroland folly. The worry is that inaction by the ECB in a crisis and a lack of Fed tools to absorb the event in U.S. markets leads to large drops in markets across the board. So, my current homework is to identify market and technical indicators that I can use to signal those times when it is time to put on protection (since having protection consistently will consistently reduce profits).
At this point, the EU has not experience the action forcing event that we saw in the U.S. in 2007-2008, but their actions to date dealing with the drop-in-the-bucket size economies of Greece and Spain (with all due respect, of course) do not give me confidence that they are willing or able to step in if need be. Thus far "actions" have been political. Markets have traded on whispers and weak follow through. Whilst this does not effect my long-term holdings, I am squeamishness that if a large event -credit or liquidity- hits Euroland they will not be capable of taking action. THIS TYPE OF CRISIS WOULD NOT BE A BLACK SWAN.
So, I now look for ways to protect portfolio value against a market correction or collapse stemming from Euroland folly. The worry is that inaction by the ECB in a crisis and a lack of Fed tools to absorb the event in U.S. markets leads to large drops in markets across the board. So, my current homework is to identify market and technical indicators that I can use to signal those times when it is time to put on protection (since having protection consistently will consistently reduce profits).
