Greek Financial Crisis: Why Traders Should Tread Lightly On Opinions

greek flag - financial crisisThe situation in Greece has once again come to the forefront of our attention as the Greek government, the EU, and the IMF try to work out a package to kick the can a little further down the road. So far, this round of debt negotiations doesn’t appear to be going so well. The Guardian is providing live updates.

To recap, the Greek financial crisis started in late 2009, burned hot in 2010 and 2011, and returned to a simmer thereafter. All along, deals have been worked out to kick existing debt maturities down the road. Is the crisis in Greece ready to heat up once again?

Speculation on the Greek financial crisis has caused many traders grief over the past 5 years as they try to trade the situation in a vacuum. But since each situation has been temporarily fixed and the equity markets have continued higher, investors are now growing numb to it. But investors need to be careful how much they downplay it… especially those taking risk in and around the periphery of the situation.

Aaron Jackson offered a nice insight into investor sentiment over on At The Money Charts this week:

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The consensus sentiment among market commentators is ‘Greece doesn’t matter’.

We can read that as ‘I’m positioned as if Greece doesn’t matter’.  In the other most recent Greece debt crises, the sentiment was exactly the opposite.  We’d hear things like Greece is going to lead to the end of the European Union etc

The question is how long does it take for that sentiment to turn?  Given how negative sentiment has been, maybe it’s sooner than later.

This is precisely why active investors should stick to their plans. Rather than making large bets on the outcome or what one thinks the situation means, it’s probably better to simply stay attuned to the situation and monitor risk a bit more closely.

The big fear is that the Greek financial crisis could re-fuel the sovereign debt crisis across southern Europe? Bond yields for Italy, Spain, and Portugal have all risen sharply over the past week, highlighting investor fears of contagion. Per Bloomberg, at the time of this writing 10-Year Government Bond Yields were as follows: Greece (12.49%), Spain (2.34%), Italy (2.32%), and Portugal (3.18%). This contrasts to Germany whose 10-Year Yield is at 0.80%.

European equities have been hit much harder than U.S. equities. Currently, the S&P 500 is trading 2 percent off its all-time highs. At the same time, other “fear” gauges like precious metals (Gold and Silver) have been subdued and the Volatility Index (VIX) remains tied to 15… for now.

Trade safe and thanks for reading.


Twitter: @andrewnyquist

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.