rather than pick out individual stocks to trade, it can often be worthwhile to trade the indices themselves, especially in times of high volatility.

for those so inclined, i attach below charts for FTSE and FTSE 250, though one might equally be tempted to trade Dow or S&P, which is significantly broader in its coverage, or even NASDAQ

for ease of reading, i have attached 1 year and 3 month charts in each instance

You were right BM, damn it! Can't you be wrong just for once??? ;o)
Bloo*y Eurozone kicking off ....again.

Greece bailout money decision looms

European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) officials are expected in Athens later to review Greece's progress in cutting its debt levels.

You get a feel the FTSE wants to rise but then it seems it is being pushed down with unknown situations in Europe

Sorry Harry. FTSE will rise this afternoon.

well.....................

Market prices for Greek government bonds imply a 100% probability of default. But this does not mean a Greek default is already priced into the global asset markets. Heres why.

The Greek default is indeed inevitable, but there remain two possible ways the world may learn about it, and financial markets will react very differently depending on which of these two processesfor default occurs.

The first possibility is a structured default that would be announced on a Saturday or Sunday, when financial markets are closed. It would involve the simultaneous disclosure of at least three items:

1.The terms for restructuring Greek government bonds i.e. the default.
2.A comprehensive plan for recapitalizing systemically important creditors (banks) throughout the euro zone.
3.A coordinated program among central banks, the International Monetary Fund (IMF), and sovereign wealth funds worldwide to support the government bond markets of other countries in the European Union (EU). This might not include every country in the EU, so its possible that other countries in the EU might restructure their debt as part of this program.


Assuming investors perceive each of these three programs to be credible, a structured default would likely be a positive catalyst for global asset markets. If a coordinated plan for default in Greece is accompanied by a fourth announcement involving credible policies to stimulate economic growth throughout the euro zone, financial markets should recover hard and fast.

The second, more worrisome, possibility is a messy default. Such a default could occur at any time, and any number of possible catalysts could trigger it. The tipping point for a messy default is not important. What matters is that any announcement of default will be messy if it isnot immediately accompanied by a plan for restructuring euro zone banks and a program for defending the remaining sovereign debt markets in the EU.

In my opinion, the recent decline in equity markets has already discounted some of the downside risk associated with a messy default, but not all. Another 15%-25% downside in global stock markets is plausible in the event of a messy Greek default.
Double-dip recession? Probably

There is a high probability of recession in the U.S. economy in the next 12 months, but that wont affect the stock market much because the outcome of the Greek default process trumps everything. If we see a messy default in the euro zone, a double-dip recession will be effectively guaranteed, and the default combined with sour economic news will surely drive stocks down.

On the other hand, markets can probably perform reasonably well, even in the face of recession, provided a successful structured default process takes place in Greece. The decline stocks have already experienced is within the historical range of a normal recession. The S&P 500 Index is down nearly 20% from its April high, while the MSCI EAFE Index of international stocks is down nearly 30%.

Since stocks have already discounted a normal recession, a shallow recession will be a positive surprise. There is reason to expect any recession in the near-term to be shallow, if it happens at all. If so, many stocks are already priced too low.

Two things make the difference between a shallow recession and a deeper collapse. First is the magnitude of swings in the cyclical sectors of the economy, most crucially housing and autos. Today, activity in the housing market is already consistent with a full-blown economic depression. The housing sector might take years to recover, but a steep decline from here is unlikely.

In the auto sector, unit volumes were recently running around 12 million cars per annum, a level historically associated with a deep recession. Like the housing market, auto sales may stagnate at recent sluggish levels for a long time, but a sharp turn downward from todays level is unlikely.

The second factor reducing the odds of a deep recession is the absence of a massively over-built sector in the economy. In the recession of 2000-2002 the over-built sector was technology. More recently it was housing. Today nothing of consequence in the private sector economy shows signs of dangerous excess.

Unfortunately, the key term here is private sector. There is one important corner of the economy that is massively overdone sovereign debt. This brings us back to my original observation: The near-term future in the stock market is almost entirely dependent on the degree of structure and credibility that accompanies the inevitable Greek default.

Implications for Investors

The end of the world only happens once, so its a very low probability event. Art Cashin

The best way we know for investors to prepare for binary outcomes in the asset markets is to prepare for both possibilities. That means building a cash reserve to cushion downside risk in the event of a messy default, and more importantly, to create dry powder to take advantage of investment opportunities that would emerge in a global market sell-off.

In addition to a cash reserve, investment portfolios should include a healthy dose of quality. In the stock market, quality means global companies with strong balance sheets, sustainable competitive advantages, and especially growing dividends. Viewed from a longer-term perspective of five years or more, common stocks of dominant global businesses are the best possible investment choice for preserving capital and growing purchasing power in an uncertain world.

The notion of quality in the bond market means high credit quality, prudent maturity limits (10 years or less), and opportunistic exposure to diversifying sub-sectors of the bond market like municipal debt, non-agency mortgage-backed securities and international bonds.

The third strategy for a binary risk environment is intensive preparation. Investors need to know what they would sell, and why, in the event of a messy default in Greece. Conversely, investors should prepare a list of buy ideas, and why, in case the weekend news includes a credible plan for a structured default that garners a positive reaction in the asset markets.


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yeeeeeeeeeeeeeeeeeeeeeehaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

No way will there be a further 15/25 % off the FTSE even a hardened shorter like me does not think this is likley.

I do think it will not be a structured default as the knobs in the EU could not even organise a piss up in a brewery.

DOW futures are flat and data from the U.S. may be worse than expected. Not sure your confidence in a FTSE rise this p.m. is on solid ground, BM, but then I have been known to get my timing wrong!!!

Who knows Harry its a gamble, but I have not shorted anything today.

opportunity knocks! also... other

--Maximum Amount Dealers Could Collect On Greek CDS Is $4.1Bln

--Combined Greek Sovereign Bond Exposure Of French Banking Trio Is $6.6Bln

--Dealers Most Active In Sovereign CDS Overall, But Dealer Net Buying Of Greek CDS Unclear

NEW YORK (Dow Jones)--Dealer banks do not seem to have purchased enough insurance for the catastrophe that could be a Greek debt default in the coming quarters.

A back-of-the envelope calculation using the maximum amount that derivatives dealers could collect on sovereign default insurance tied to Greece highlights how inadequate payouts could be when contrasted with the exposures of even a few banking institutions.

Turquoise, the London Stock Exchange's pan-European equity trading unit, announced the debut of FTSE index options on its derivatives platform.
The firm said three market makers have committed to providing liquidity for Turquoise Derivatives, including Citigroup and securities trading firm Tibra Trading Europe Ltd. Turquoise said its derivatives operation aims to provide tighter spreads and enhanced order-size availability for swaps traders, along with a more attractive fee structure.

"We are seeking to challenge the dominance of traditional venues and are positioning ourselves to take advantage of regulatory change that promotes an open and competitive environment," Turquoise Chief Executive Adrian Farnham said in a statement.

They will default, and they will leave the Euro.

Sooner the better imho.

agreed....

The yield on 1-year Greek government debt ended last week at 110%, down slightly from a mid-week peak of 130%. Even with the pullback, the Greek yield structure continues to imply default with certainty. All the markets are really quibbling about here is the recovery rate - what percentage of face value investors can expect to obtain post-default. That figure was still hovering near 50% as of Friday, but was a bit higher than we saw a few days earlier.

Despite a Greek 1-year yield that is already over 100%, it is still possible to kick the can down the road for another few months with another bailout, but the costs of that would now be extraordinarily high because of the low expected recovery rate. Much better to provide the funds to a post-default Greece, or to use them to recapitalize the banking system after losses that now appear inevitable.

Doureios Ippos: Greek 1-year yields
Equo ne credite, Teucri! Quidquid id est, timeo Danaos et dona ferentes*



As a refresher on how all of this works, the following chart appeared years ago in the Economist, a chronicle of the frantic bail-outs in the months preceding the default of Argentine debt (which amounted to about $81 billion. Needless to say, the numbers involved in a potential Greek default are much larger, but the pattern we are seeing in Greece is identical to the signature of other historical sovereign defaults (see Uruguay, Russia and other countries as well ) - a sustained rise in yields, coupled with official statements about the "impossibility" of default, multiple bailout efforts that quickly fail, culminating in a vertical spike in yields (toward the inverse of the expected recovery rate, minus 1).



The case of Argentina is instructive because it was in a situation much like that of Greece. Argentina's currency was both pegged and officially convertible into the U.S. dollar, and most of Argentina's debt was denominated in U.S. dollars, creating a situation where its debt burden was in the form of a currency that it effectively could not print. The subsequent default was accompanied first by an abrupt devaluation of the peso to a new peg, and eventually to complete abandonment of the pegged exchange rate.

From the history of sovereign defaults, we can already create something of a roadmap of the financial crisis that appears about to unfold, and the associated choices involved.

Suppose first that Greece agrees to implement new austerity measures and receives another tranche of bailout funding. We already know that applying severe budget austerity in an economy that is in depression (as Greece essentially is) does not materially close the budget deficit, but instead produces further economic weakness and revenue shortfalls. The past year has been a clear example of that. By the end of the year, even with new bailout funding, Greece will have a debt-to-GDP ratio approaching 180%. This is an impossible debt burden to service, and would be even if interest rates in Greece were only a few percent. New bailout funding here means that we'll observe more rioting in Greece as new austerity measures are implemented, the Greek economy will largely shut down, and within a few months, we'll be facing the default issue again but at an even higher debt-to-GDP level and even lower anticipated recovery rates.

Thus, a bailout does not avert default, but at best defers it to a later date, and squanders funds that could otherwise be used to stabilize the European banking system once that inevitable default occurs.
Of course, there is the implausible option for stronger countries such as France and Germany to literally pay off half of the government debt of Greece, taking those debt burdens upon themselves. But this clearly would not be tolerable politically, and would invite similar expectations from other teetering Euro-zone countries such as Portugal, undoubtedly also encouraging them to completely abandon any remaining fiscal discipline.

So Greece will default, either now or within several months. In response, three actions will be critical: preventing contagion, preserving the euro, and stabilizing the banking system.
First, and most immediately, European leaders will have to prevent contagion. As I noted two weeks ago, Italy and Spain are the most worrisome targets of contagion, but even though they are large and have high debt-to-GDP ratios, there is no credible risk of default in these countries in the foreseeable future. So the ECB should absolutely be willing to extend its purchases of Spanish and Italian debt. Even the U.S. Federal Reserve, which is authorized to purchase foreign government debt under Section 14 of the Federal Reserve Act could provide significant stability by initiating even modest purchases of Spanish and Italian obligations (purchasing Greek debt, on the other hand, would wander unconstitutionally into fiscal policy, since the likelihood of default is so high). The key to stopping a contagion is to delineate which countries absolutely belong behind the firewall, rather than behaving as if all of them do.

As for the euro, the best chance for a durable currency is to restrict its membership to countries with similar macroeconomic characteristics that are actually capable of following a very uniform budget discipline. Neither a single central fiscal authority for all of Europe, nor the issuance of "Euro-bonds," are useful ways of achieving this goal. There is too much economic heterogeneity and too much cultural individuality in Europe for all of these countries to surrender their fiscal policy independence away from their own citizens. Meanwhile, "Euro-bonds" would represent an effective subsidy and guarantee from more stable European countries to less stable ones, and would encourage moral hazard and fiscal recklessness the likes of which the developed world has never seen.

Ultimately, the only way to preserve the euro is to remove its fiscally unstable members from the formal currency arrangement. Peripheral European countries could potentially substitute that with a pegged exchange rate. Of course, even a pegged exchange rate can lead to a currency crisis if fiscal discipline is weak enough, as we saw a decade ago with Argentina. Still, it would be far better for countries such as Greece and Portugal to redenominate into their own currencies, and peg them to the euro, than to bring down a system that works very well for the majority of European citizens.

The third policy response, of course, would be to stabilize the banking system. My own view has always been straightforward - investors and institutions that voluntarily accept risk in order to reach for extra yield should be prepared to suffer the losses if those investments fail. Nearly every major financial institution has enough shareholder capital and debt to its own bondholders to absorb losses without any loss to customers or counterparties. Financial institutions that become insolvent as a result of bad investments should be taken into receivership and recapitalized under new ownership - with the existing shareholders wiped out, and the existing bondholders receiving the residual (which in most cases is 100 cents on the dollar for senior debt anyway, and often close to that even for subordinate debt).

In any event, however, whatever public funds Europe wishes to use in order to address this crisis should be directed to replenishing the capital of banks (ideally, restructured ones), and providing emergency capital to a post-default Greece. This is in Europe's best interests, and it is in Greece's best interests, because however longingly policy makers would like to imagine that further bailouts can prevent a Greek default at its current level of debt-to-GDP, the arithmetic simply does not work that way. The time for changes to fiscal policy was years ago, well before the Greek debt-to-GDP level scaled its current heights. Europe will now have to play the hand that has been dealt.

So, unfortunately, will the United States. According to Fitch Ratings, the ten largest U.S. prime money market funds had total assets of $658 billion as of July 31, 2011. Of those assets, $309 billion - an unsettling 47% of the total - represented debt obligations issued by European banks. It is unclear what level of subordination these debt obligations take, but we can expect that in the event of a Greek default, this concentrated ownership of European bank debt by U.S. money market funds will be less than ideal for investor confidence. (As a side note, the money market assets held by the Hussman Funds are in U.S. Treasury funds.)

I can't imagine what the yield-reaching managers holding European bank debt are thinking, but if last week's agreement by the Fed to provide dollar swaps to the ECB is any indication, my guess is that the eagerness to send dollar liquidity to Europe is abruptly drying up from private sources. In any case, the heavy allocation of U.S. savings to the European banking system strikes me as an awful example of "moral hazard" produced by two forces: the 2008-2009 bank bailouts, coupled with a European regulatory structure that doesn't require those banks to hold any capital against holdings of European government debt, including that of Greece. As we saw in the housing crisis, when a weak regulatory structure encourages unaccountable leverage, and irresponsible monetary policies encourage reaching for yield, the combined result is predictably disastrous.

Market Climate

lol

Long / Short ?

lol yes - some people can be undecisive but not sure!!!

For Thursday -

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Retail Sales (JPN)
PMI Retail (GER) (08:55)
Unemployment Rate (GER) (08:55)
PMI Retail (EU) (09:00)
Economic Sentiment Indicator (EU) (10:00)
Business Climate Indicator (EU) (10:00)
Gross Domestic Product (Final) (US) (13:30)
Initial Jobless Claims (US) (13:30)
Continuing Claims (US) (13:30)
Bloomberg Consumer Confidence (US) (14:45)
Pending Homes Sales (US) (15:00)
Kansas City Fed Manufacturing Activity (16:00)

Looks like another bloodbath for the FTSE Thursday. Lost 70 points since close on futures price. So looks like FTSE will open down at least 70 points Thursday.

Update FTSE Futures closed 5141 down 76 points

When will it end?

11,000 - I spit in your eye.

After Greese defaults and gets thrown out of the Euro.

Short for the rest of this year is my bet.