The hype and attention surrounding the Greek Vote this weekend has become sickening. One could use the verbiage of a financial ‘Super Bowl’. An event that will make or break markets for the next few weeks or months. From all the coverage one would think Greece is a financial powerhouse, and its possible exit from the Euro would cause massive economic upheaval throughout the world. A cataclysmic event on par with the Lehman Brothers and the Bear Sterns collapse combined.
With Greece’s old currency “the drachma” valued at near zero, Greeks will be forced into a barter system where olives and goat cheese pay the bills. The only 10 year note they read about, is from a violin playing a sad song.
Lets get serious now… How can Greece’s exit from the Euro cause so much fear and panic throughout the world. Greece is only 6% of the Eurozones GDP and it’s been in big trouble since late 2009. How can this not be a relief for the Eurozone? Folks already took a 75% haircut on Greek debt. Continued bailouts will only encourage the countries behavior. Cut Greece out like a gardener prunes a tree.
The market has been pricing in such an event for the last few months. U.S. Treasuries and German Bonds have received record demand. The USD dollar has skyrocketed despite record low interest rates and intervention. Safe havens amongst the possible risk of a Greece exit or default. This is old news, yet folks are hyping it up like we were born yesterday.
This environment happens often in the market. It’s a “Heads I win, Tails you lose” trade.
So the two scenarios:
The vote goes for the Syriza party, Greece fails to meet the austerity measures, and they leave the euro. Chaos!
The vote goes for the PASOK parties, Greece fear overcomes the anger, and they stay in the euro. PARTY TIME!!!
Both scenarios are relief scenarios. The market is an amazing pricing mechanism, and there is no doubt the market would be substantially lower if a Greece exit meant devastation for the world economy. Heck, Apples (APPL) market cap is higher then Greece’s GDP. This means the market is relieved about the event finally happening, and we rally as it’s already ‘priced in’.
So what we will be playing are financials. Calls in FAS, Citigroup (C), GoldmanSux(GS) and puts on SKF. Also will be looking for oversold growth stocks like Priceline.com(PCLN) and Salesforces.com(CRM). Starbux(SBUX) should be a nice play as the recent sell-off was all eurozone related.
We will have more tomorrow trades tomorrow as we have Part II on how to play the Greek Vote.
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