Fri 1/10/12 4:20 PM – Markets Drop on Greek Worries

No sooner did I comment on how many days the market had been up so far this year and we had a drop of 0.7% in the US and double that in Europe. Gold was down as were bonds and oil.

Usually when confidence in the stock market gets too high, the market will fall. The recent survey of institutional investors, who represent the vast majority of trading showed 52% bulls and 20% bears. That’s not extreme, but its pretty high.

It won’t surprise you if I say that the main worry right now is Greece. The Eurozone finance ministers told Greece that the very hard-won agreement with private creditors was not austere enough and that Greece would not get the bailout needed to avoid default in March, that is, unless it came up with another 34 billion in austerity measures. Meanwhile, Greeks are protesting in the streets of Athens over the program that the EU finance ministers say is not tough enough.

Not only do the ministers want an agreement with more cuts but they want parliament to approve it and even more, the individual politicians to sign a pledge that it will be implemented. Too many austerity measures have been passed and not implemented.

This is really coming to a head and while no one wants Greece to default, or so they say, I think the odds of Greece leaving the Euro zone are rising, perhaps as high as 40%-50%. If that happens, it will not be good for European stocks, nor ours’. Contagian will be on the lips of European traders across the continent and the recent improvement in Italian and Spanish bond markets will unravel. I’m not predicting it yet because the situation is too complicated and drawn out to be able to make pronouncements like that at this point. But, the likelihood is rising.

The markets will likely trade each day next week on whether the Greek news is good or bad. I won’t be surprised at all to see a 3%-5% pullback in US markets over the next week or so, depending on the news from Europe.

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