June 13th the day of default for Greece

I will take the risk of looking utterly silly come June 14th, but there is better than 50/50 chance Greece will default before June is over - the favourite day being  June 13th!

At least that's the rumor in the market this morning - Rumors are just rumors, but this time I will call them credible rumors due to the nature of where it comes from.

What will happen IF - Greece did default?

• EURUSD will hit 1.1000 and then start to climb (we are very focused on the dramatic slow-down in US growth which means the cyclical help to stronger US Dollar is about to disappear)

• A controlled default - like Argentinas with hair-cut of 25-50%(Argentina default link) will hurt the major european banks and send the banking sector into tail-spin, but.........the new Euro SPV could probably be used in US/UK style to gloss over the biggest risk. Do not forget the European banks are now quasi-government owned- hence they will be bailed-out AGAIN.

• The spread contagion will continue - maybe it's just me but has people started to notice the big blow-out in Belgium and Italy? This is receipe for more trouble, especially in Belgium post this Sunday's election:

• But it would change the 'dynamics' as it is the RIGHT THING TO DO - so the market should down the line after readjustment find a better level from which Europe and risk will be trading better. My biggest macro theme remains: The SERIOUS SLOW-DOWN of US growth happening right now and into Q3 and Q4. I see US growth back to ZERO in Q4 - which is way below the consensus of 2-4% by the Ivory Tower economist' in the investment banks.

Strategy:

• Watch Belgium as the Canary in the coal-mine. Contagion and as friend of us pointed out: Every political change (UK, Hungary, Greece) has had MASSIVE IMPACT post on debt levels and reality checks. Watch Belgium and Holland next few weeks. Belgium election link
• Our Beta model is making money.....

Conclusion:

1. Stay out of stocks our ALERT WARNING is still in place. May 20th ALERT blog
2. Beta model is tranding - indicating less and less upmoves
3. Greece has 50/50 chance of default June 13th
4. ECB (and indirectly all of Europe) will move to QE inside next two month
5. EUR$ in 1.1000 / S&P in 1030/1000/Gold in 1300 before summer holiday in August

Be safe,

Winston

Quick-update

Just back from having been stranded courtesy of the Icelandic - First they overleveraged and now they disrupt traffic - not easy...

Been very light on trading as I have been waiting for the April 19/21 cycle top to potentially form.

Could it be today? Certainly STOXX50(Europe) turned below its 21 -dma today indicating some top and advance/decline also fading..


Themes right now:

1. Greece and more importantly contagion to Portugal (hit +179 bps over Germany today)
2. Timing of bail-out for Greece (and airlines industry) - the higher the spread goes the faster Greece needs the money + it adds to "minimum" price as no one is supposed to lose by supporting Greece (i.e reference to press conference two weeks ago)
3. Obama and US law makers financial reform bill. The banking industry was hated up until last week - now people wants BLOOD - Yes, there are beginning to be blood in the in street now - watch this play out... 
4. Mid-term election positioning has started - First rush: Who will make and take credit for TOUGH LEGISLATION on banks?
5. Timing - its too early to call for any sort of top, but on the other hand this time period is either make or break - if we "survive" next 48 hrs we will see 1250/1300 if not... a new paradigm is in town.

Positions: Add to Gamma long downside in stocks. Biggest VaR options on EUR downside.