Greek Elections

http://blogs.wsj.com/marketbeat/2012/06/15/bracing-for-greek-elections/

By Steven Russolillo

Will the Greek elections be remembered as the ultimate “buy the rumor, sell the news” type event?

Stocks surged again, with the Dow notching back-to-back triple digit gains for the first time this year. Investors are bracing for this weekend’s elections, although the late-week rally has certainly caught many investors off guard.

All eyes now turn to the Greek elections, as investors of all stripes brace for another round of financial turmoil.

Earlier Friday, Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, blasted a note to clients prepping them to brace for another round of volatility. He explains how the firm has been largely overweight in U.S. stocks since early 2010, and expects to maintain that same positioning after this weekend’s events:

Because we have been preparing our portfolios for the Greek endgame for some time, we are monitoring positions but not taking any further action in anticipation of Sunday’s election.  This does not preclude the possibility that the market will sell off assets classes of all stripes next week should the election produce unpleasant surprises.  However, we have assessed the situation and believe that some economies are embarking on a decoupling process that will continue after the initial shock.  Asset classes that have been unfairly punished at the hands of the Eurozone crisis may be able to bounce back as this process takes hold.  That would be very similar to the reaction of U.S. stocks amid the late 1990s Asian currency crisis:  the S&P 500 initially swooned but then kept right on running.

He explains how the market has had years to price in “the slow motion train wreck that is Europe.” No matter how the elections play out, he’s prepared to ride any short-term volatility and wait for a longer-term move higher.

At this point the market already reflects some level of potential European damage.  When the newspapers cover endless scenarios for years in advance of an event, oftentimes there is lessened shock when the big day arrives.  In other words, the slow motion train wreck that is Europe has been on investors’ minds for an entire market cycle – and it is one of the reasons equities are trading at valuation discounts.  We are not of the view that valuations will recover to normal levels in the short term but cheap prices provide a margin of safety if the turbulence persists…

To summarize, we have decided to maintain current postions in anticipation of the Greek vote.  We have been preparing for this likelihood ever since our calls for a Eurozone breakup were met with skepticism.  While our current opinions have not changed, market information evolves on a daily basis and we stand ready to take additonal action if necessary.  We continue to bias heavily into U.S.-domiciled stocks, holding only cursory exposure to Western Europe, Australia and Japan.