Slow motion chicken

Macro Man's back from a family holiday in rural Texas, and lo and behold it looks like we're finally nearing the end of the world's longest, slowest game of chicken.  Some five and a half years after Greece's naughty public finances first came under the microscope, the endgame at last appears to be nigh.

"Who cares?!?!?!" shouts my 26-year old alter ego.   "Greece isn't Lehman!"

Yes, it's true that Greece isn't Lehman.  Greece is not an intermediary to trillions of dollars worth of financial transactions across a myriad of counterparties, and issues of re-hypothecation of collateral and similar "oi, where's my money!" issues don't really exist.  (Unless, of course, you're the IMF or one of Greece's other official creditors, in which case you're probably thinking "oi, where's my money!")

That having been said, capital controls are capital controls, and -quelle surprise!- the "one-off" imposition of such measures in Cyprus turned out to be...err......not one-off.   On a happier note, capital controls in Cyrpus rolled off a couple of months ago, so any Greeks not prescient enough to get their money out of dodge can look forward to doing so in the summer of '17.

"Yeah, yeah, cry me a river," mutters the alter ego.  "There's only two things you need to know about this mess:   stocks are going on sale, and the Fed is never tightening.  You know what to do, baby!"

It's true that the initial reaction to these sorts of fiascos is rarely the final one, and there's usually some sort of retest regardless of the magnitude of the initial move.   That having been said, the alter ego has never seen anything remotely resembling proper distress in his "professional" life, and running out of Schaefer kegs at that great party in 2008 hardly qualifies as a "crisis."

"Low blow, old man, but at least now I can see where you got all that gray hair- listening to stupid war stories from embittered market veterans back when you still had game.   Janet knows what time it is, and she can- to use your analogy- hook us up with plenty of kegs of delicious Bud  Light Lime at the drop of a hat.  QE uber alles, or whatever it is the Germans say."

Actually, it's "Deutschland, Deutschland über alles," which is as succinct a summation of Eurozone economic policy as you're likely to find.  The irony, of course, is that the initial market reaction- to sell euros- is as nice a treat as German exporters could ask for to punish those naughty, naughty Greeks. 

That being said, the "collapse" in the euro is at present rather underwhelming, to say the least: at the time of writing EUR/USD is still well above where it was in late May.  If you'd known the payroll figure and that Greece would apparently finally lose the game of slow-motion chicken, you'd be asking for your money back to see EUR/USD at 1.10.

Actually, can I have my money back?

"Serves you right, Grandpa, for trading those stupid macro instruments.  So old and yet so naive.  Repeat after me:  the only asset class to own is stocks (or high yield if you're a bond guy.)  There are only three permissible positions: long, longer, and longest.   QED."

QED?  I didn't know that they still taught Latin in schools.

"It stands for 'Quantitative Easing, Dammit'!   That's the only thing that matters.  You can't fight the ECB and the Fed."

Actually you can, and that's typically how guys like me make money when guys like you are doing this.  Nevertheless, there's no point arguing about it.  You're going to buy stocks (or at least claim to have if they bounce back), and I am not.  Regardless of what you might think of the SPX, why anyone overweight Europe wouldn't reduce by quite a bit is a question that we're likely to find the answer to over the next week or two.

Front VIX, which closed in the mid-teens on Friday, will potentially be a useful guidepost in gauging how the market reacts, though obviously the more useful signals will come at higher levels.  In the meantime, Macro Man will look to add opportunistically to his short euro position and once again wonder if the yen is the unintended accident waiting to happen.  Good luck out there.

"You too, old man, and don't forget to take your Geritol."

Hmmph.  One more episode of Spongebob for you, young man, and then it's off to bed.