The market is soaring today on the Greek bailout plan, or should we say the European bailout plan because, lest we forget, there are several more countries that still need a bailout.
The plan is amusing to me, though I should not feel amused at all today because my net long exposure is the lowest it has ever been. That means that we are only minimally participating in the euphoric 13% rise in the US equity markets this month…a moon shot, really. In fact, we used today’s blast off to sell out of some long-held positions because they reached our estimate of intrinsic value. At this rate, we could be net short by the end of the year.
If the market holds here, it will be the market’s best month since an 11% rise in December of 1991. For some perspective, in December 1991, the eastern European countries were becoming acclimated to their new-found freedom and it was shortly after the US and coalition forces defeated the Iraqi army in Operation Desert Storm with minimal resistance. So, it was a time of great optimism. In fact, the market rose 31% that year. (Update: Jason Zweig just re-tweeted (http://twitter.com/#!/jasonzweigwsj): “Only 2 months since 1950 where S&P 500 has been up, for the month, more than current MTD – Jan 1987 & Oct 1974 (+13.2 & +16.3%, respectively)”)
The most amusing thing about the optimism surrounding the bailout plan is how much work is left to be done. The first thing I thought about when I heard the details (or lack of details) is Steve Martin’s SNL monologue in January 1978:
You.. can be a millionaire.. and never pay taxes! You can be a millionaire.. and never pay taxes!
You say.. “Steve.. how can I be a millionaire.. and never pay taxes?”
First.. get a million dollars.
Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?” Two simple words. Two simple words in the English language: “I forgot!”
When the Euro ministers go to the Chinese to get a trillion euros, will the Chinese actually give it to them? Details. And, if they do, and the Chinese come knocking on their door later to retrieve their capital along with a hefty return, will the ministers simply say, “I forgot?”
As Bob Pisani said today on CNBC, Italy is due to roll over 200 billion euro of debt early next year, which equals all of the capital that was dedicated to the EFSF last night. Details.
I have analyzed risk my entire career. The following is the first question that people like me ask when someone comes to us with a deal that the seller considers too good to pass up: “Why am I so special that I am going to get access to this great opportunity? What is it that I can bring to the table that makes me special?”
If you can only bring money to the table, then look out because money is completely fungible and they must think that you are the mark. The European ministers must be hoping that the Chinese and others don’t ask that question. Either that, or the Chinese (and others) are about to buy at very low prices some Greek Islands, the Vatican, the south of France, the Louvre, Daimler and BMW, some patented British and German aerospace and defense technology, and a few other Euro businesses, intellectual property, and hot spots.