NOMURA: Hold Everything, The Market Is Blowing The Greece Crisis Totally Out Of Proportion

We’re used to seeing most market strategy notes advise clients to basically do what the trend is saying.

When markets are down, people turn bearish. When markets are up, people turn bullish.

So when we see a resolute contrarian stand, we take note.

Nomura’s Michael Kurtz has a new note out basically arguing: wait a second, things haven’t really gotten that bad.

First he notes that EVERYONE is being taken to the woodshed this month. The dollar and Treasuries have done well, but beyond that, pretty much everything else around the world got clobbered over the last month.


Photo: Nomura

The notion of ‘due process’ may be an amusing irrelevance in the court of financial markets, but it strikes us all the same that global assets may be guilty of a substantial rush to judgment. Last time we checked, Greece is still in the euro (yes, yes, for now), and there are more than three weeks yet before Greek voters, who consistently indicate an overwhelming preference to stay in the single currency, will even be registering their second-round vote — let alone giving that mandate back again to the repudiationists of the Left and all of this still then spiralling into a disorderly exit beyond the ECB’s ability to contain or stabilise.

What’s worse, the financial kangaroo court that seems already to have decided for you that tiny Greece is an uncontrollable global growth disaster literally just waiting to happen may not even be doing your portfolio any good: By asking you to embrace its verdict and seek the safety of US Treasuries, for example, the fear industry is asking you to be content with a yield of just 1.7% in a world still expected to produce 5.0% nominal GDP growth in 2012 (and 5.5% in 2013).

That leads Kurtz to this chart, pointing out that the equity risk premium (earnings yield minus risk-free Treasury yield) is back at ultimate panic levels (although the VIX is still nowhere close).


Photo: Nomura

Ultimately, he argues, people are being too pessimistic about the prospects of policy response, when in fact we’re already seeing leaders get in gear, especialy in China, where the fiscal/monetary stimulus talk is getting heavier.

Says Kreuz:

…all this market weeping and gnashing of teeth could prove yet another significant buying opportunity: Greece may yet exit the euro after all, but with effective ECB and global policy action its impact could be limited to no more than the rounding error that the Hellenic Republic’s small size and deplorable politics render most fitting.

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