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Monday, October 3, 2011

Grecian October

Some people love October.. leaves turning color and beginning to fall... weather turning colder and the opportunity to wear new sweaters & jackets... the excitement of baseball playoffs... and of course, the fun of watching children dress up and trick-or-treat for Halloween.

But October is also a terrible month historically for the stock market.  Pretty much every crash, whether big or small tends to occur on on this month, which is the beginning of the 4th quarter, and corporations and investors try to figure their profits and goals for the new year.

This year, the volatility in the markets is centered around Greece.  And whether we have a crash or just a bumpy ride will all be determined by this small nation and how Europe & US deal with it.

Here's a very brief and simple cliff notes recap of the last 10 years: In 2001, Greece with GoldmanSachs' assistance, pretended their economy was stronger than it was.  Their debts were temporarily taken off their books thanks to Goldman accounting and impressed the EU enough to allow Greece to acquire low interest loans from banks and investors.  Once Greece got the money in the form of selling government bonds, they quietly took back the debts Goldman was secretly holding for them.

Over time, Greece was increasing its debtload because it imports far more than it exports and as its credit ratings lowered due to the riskiness of Greece paying back on its bonds, the more interest it had to offer investors and banks to keep them investing. And this created a downward cycle where now banks especially in Germany an France are on the hook for billions of euros which Greece can not repay but the losses would be too catastrophic if Greece was was allowed to default.  Add to it the derivatives (insurance) sold by banks in other nations, especially the US to cover any losses the French and German banks would suffer, and potential insurance policies of those banks,etc, you have an endless web of derivatives that if cashed out would cost untold trillions and wipe out the banking system, which is pretty much insolvent as it is.

So now Greece has an F credit rating, GDP of -7.7%, GDP to debt ratio of 149%, no way to pay its debts without further bailout funding, and now this:  Greece admitted today it won't meet its deficit reduction targets.  This has raised renewed fears that the country will not get crucial bailout loans it needs to avoid a default and markets are panicking.   Meanwhile, Greece passed today another 8 billion euro ($10.7 billion US)  in austerity upon its people- money the people don't have to pay, and is pushing the nation closer to open revolt.

Monday ended with the Dow at -253 to close at 10,655.

Everyone assumes the best and brightest minds are going to come together and find a solution.  There's hope.  Really not sure where these great 'minds' are because they've done little to nothing substantive so far to solve this crisis.  Ultimately it comes to greed-  banks don't want to take loss on their Grecian investments an neither do Investors.  And both are so accustomed to being bailed out and covered on losses 100 cents on the dollar, that everyone is fighting tooth and nail not to lose a single euro on Greece.  Then there's the fear (rational or irrational) that Greece default will trigger other defaults..

Ultimately this is going to be a very volatile and scary October.  Perhaps the can will be 'kicked' down the road again by Europe, or perhaps not.  Things should be much clearer by the 31st, especially with Greece needing its next installment of funds from the IMF by the 15th.

This is all complicated stuff.  I am sure much if not all of it is hard to follow if you haven't been keeping track of such things, and really its not like we as individuals or people have power to influence the decision making processes of the elite.

But we can be prepared for the worst.  A crash is not a pretty thing and really no one is alive today who experienced what a prolonged bank holiday was like when their life savings was being held there.  Have emergency cash handy- small bills preferably and some extra food in the cubbard.  Nothing too crazy mind you.. just enough to ride out potential 'storms'.  And if everything is super-duper by month's end and nothing bad happened, be happy and think, really what did you lose?

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