The markets have been extremely difficult to navigate during the past two months with the brouhaha over in Europe taking center stage. As I write this post after the close on Friday, I note that VIX is at nearly 43 and VXO is at nearly 44. These are extreme measures.
In light of this uncertain financial environment, I have adjusted my positions. Like most investors, I have suffered with the onset of the uncertainty. And, perhaps unlike some, I have de-risked or reduced my exposure. However, I am still not entirely comfortable with my new positions, because the European situation is so uncertain.
The trick is to stay in the game. Make sure that your risk exposure is something you can live with. As Todd Harrison says over at Minyvanville.com, "... [There will be] fewer and newer players by the time we get to the other side."
As I was winding up my day last night, I read George Soros's article How to stop a second Great Depression in the Financial Times.
Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now.
Three bold steps are needed. First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct the banks to maintain their credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance their debt at a very low cost. These steps would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.
In addition to Soros's article, I viewed a video interview Fear will save the eurozone with Lawrence Summers and Martin Wolf of the Financial Times. Although it doesn't have an inspiring title, it is a worthwhile interview.
Please note, you might require a subscription to view the article and video interview.
Make sure that your positions do not leave you with excessive risk. I hope your trading and investing goes well in these uncertain and volatile times.
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