Beware Men With Microphones

 | Jan 09, 2012 | 8:16 AM EST
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What do the euro bears want? What's the dream scenario? A default of Italy, meaning that rates go Grecian? Failures of the big three French banks? A collapse of Banco Santander?

A gigantic recession in Europe? A depression? Massive crash of all equity markets? Is that what they need to make their year?

I am just trying to figure out the bear nirvana as I read headlines from George Soros saying that this crisis is worse than 2008, and I am trying to figure out why anyone would say it. Would you say it to be a constructive comment, as in, "If you guys don't get it together, we could have Europe fall apart?" Or is it, "Look, I am short this market and I am going to say the thing that most moves it down"?

Is it both?

Can someone care about Europe and therefore say the scariest things about it ... and also be short?

I mention all of this because we have Merkel and Sarkozy meeting, and the most constructive thing to say would be that they have to work together because there are grave dangers out there. The worst possible thing, the thing I would want to read if I were a bear and short the euro, European banks and sovereign bonds, would be, "The eurozone crisis is more serious than the 2008 crisis." That's what Soros is quoted as saying today.

It's what I would say if I needed to make money off the crisis. It is what I would say if I were short everything.

Here's what I think the bears want to see: They want to see runs at the banks. I don't think they will get that. The takeaway of the ECB lifeline is to avoid bank lines. They want to see Italy fail. That's crucial. Meaning that Italy borrowing costs get out of control. That means a crunching of Italian debt, the end of the euro, and a severe recession. Is that the maximum payoff for Soros?

Why do I point all of this out? Because we have the opposite statement coming from someone is long, Warren Buffett, who is saying from across the globe that it is not worse than 2008 and can be dealt with. Of course, Warren Buffett isn't thought of as a "long," but he is long for certain.

And his statements are the opposite of someone who is known as a short; they are constructive.

Here's my take: Europe's bad. Own stocks that do well in a severe European recession, which is what will happen under both Buffett's and Soros' vision.

Wait until they come down. Last week the defensives started coming down. That isn't a one-week affair. Underperformance in this market is a three- or four-week affair, if not longer.

But in either case think of this: We have powerful people with microphones who, in the second week of January 2012 are still talking about 2008. As long as they are doing that, we aren't going to be able to shrug off Europe as easily as we would like, even though no one is saying it's 2008 in the United States.

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