Tue 1/16/12 6:08 PM Europe Problems Heating Up Again/Stocks Continue Higher Anyway

Sorry, I have been reloading all my software and data after a major upgrade late last week.

It’s a new year but the same old problems with Greece. While Greece is a small country with a small economy, the total debt – government, corporate and private adds up to more than 1 trillion euros, according to Barron’s. That’s a lot of money and while it is concentrated in Greece, it is held by banks and governments across Europe.

Last week the talks broke down over yet another write-down of Greek debt. The problem is that some creditors don’t want to continue along with the charade of another round of replacing Greek short term debt with long term debt with a face value half as much and pretending it is not a default by Greece.

Technicaly, it is not a default as long as it voluntarily done by 100% of the creditors. That way does not register a default and trigger a blowup in the CDS market, which though you may not have heard of it is essentially a lot of bets or credit protection, depending on which way you look at it that Greece does not default. All sorts of repayments would be triggered which would be terribly hard on the European financial system.

This issue dwarfs the widely expected announcement that ratings agency S&P downgraded the debt of many European countries.

Meanwhile, China’s growth is slowing and the US continues with slow growth. At the same time, stock markets are continuing the December rally, especially here in the States.

The stock market really seems like it wants to go up even though it is hitting some resistance. There are a lot of technical signs that point to higher stock prices. But, the European drama continues and bad news there would be really bad news. When in doubt, stay with the trend, which is higher prices, unless it gets extreme and it is far from that.