Contagion. Greece is toast, as there is no way they can pay, and I mean zero chance. So the EU has to take a writedown. To me that means SPX is trading at too high a level, probably somewhere around 2000 is "FV". It all depends on the interrelationships. Is Greece Lehman or not? Then it is a question of Spain, Italy, Portugal, etc. If one of those even shows signs of distress, it is a fast track back to SPX 1700 imo. I have to say, I am surprised the EURO is not weaker than it is.
Greece has 25% unemployment, and 50% youth unemployment! I am astonished there isn't a civil war there. I am guessing that Greece is like Puerto Rico or Israel, it is held up by people in the US.
I am confused. So you don't think that having to erase 280 billion dollars from your a currency's plus column is weak for a currency? As to why it is good for the dollar, well, generically world unrest has traditionally led to inflows into the dollar, although I agree that in this case with zero interest rates in the US that might be like jumping from the fire into the frying pan or not much better.
I am beginning to form a theory on the EU strength. What if the EU thinks that a Greece force exit from the Euro is now a good thing? What if the writedown has already happened in Europe? That adds up. What is then interesting is that SIFs have not priced it in. And if this turns out to be Lehman and AIG, and it leads to contagion, may the EU vaya con Dios because they are next.
I have also seen a delayed reaction in Europe to these sorts of events. People will be getting back to their offices from vacation. Let's see what happens in the next few days. I want to short the living daylights out of the EURUSD, but I have no model to price it. 0.85 would be my target.