The behaviour of smart money suggests that the Greek crisis is now a mere storm in a tea cup. OK so what is smart money and how do we track it? Well in essence there is no “smart” money, that is, there is no group of players (with consistent members that is) who consistently makes money and can thus be termed smart money. However, we can identify areas of the market which generally lead the mainstream investor. Those areas of the market are typically off the radar to the average investor, in fact the average investor would not know of them or their significance let alone how to invest in them.
Let’s look at a three areas of the market that would be indicative of what the smart money is up to; small cap equities, credit default swaps, and yields on bonds relative to US treasuries:
Beauty is in the eye of the beholder……we see that the small cap market in Greece has stabilised and showing signs of turning higher. In all probability it would seem that selling pressure has been exhausted in the equity market. Due to their relative illiquidity you don’t buy small caps unless you are sure that the general market has bottomed.
The cost of insurance against default on Greek Sovereign debt has declined materially
An so too has the spread between the Greek 10yr and US 10yr, interesting how it got to a maximum of 350bps the same as that level reached during the credit “crisis” in 2008. Yes very interesting indeed.
OK we don’t place any importance on the behaviour of any one indicator, but when all three confirm each other we have something!
The crisis in Greece is passing and as a consequence the Euro is about to make a comeback and given the amount of short positions it promises to be one of the biggest comebacks in the history of the Euro………believe it or not!
