Monday was no day of rest in Europe. Major averages tumbled and bank stocks plummeted amid renewed fears about Greece, specifically, and the future of the eurozone generally.
European markets stumbled again Tuesday, most notably in Germany were factory orders tumbled ahead of Wednesday's high court ruling on the legality of the first Greek bailout. Meanwhile, EU members Finland and Slovakia are balking about the second round of bailouts in the eurozone while Rome is braced for mass protests over Italy's proposed austerity measures.
Taking their cues from Europe, U.S. stocks opened sharply lower Tuesday, with the Dow recently down 260 points and on track for its third-straight triple-digit decline. Meanwhile, gold traded above $1920 per ounce intraday while the yield on the 10-year Treasury note fell to a record low 1.91% Tuesday morning.
Along with Treasuries, gold and the Japanese yen, the Swiss franc has been a major beneficiary of the recent unrest in financial markets. But the "flight to safety" trade has been complicated by the Swiss National Bank's overnight pledge to intervene and weaken the franc vs. the euro with "the utmost determination." The franc fell sharply vs. the euro in reaction and arguably drove some funds into the remaining 'havens', notably Treasuries and gold.
The SNB's intervention is just the latest in a series of policy actions designed to avert a financial crisis that has similarities to 2008, according to (among others) Deutsche Bank CEO Josef Ackermann. (See: 2008 Redo? History Doesn't Repeat, But It Often Rhymes)
Frayed Nerves and "Cheap" Stocks
"Investors are not only asking themselves whether those responsible can summon the necessary willpower to overcome this crisis, but increasingly also whether enough time remains and whether they have the needed resources available," Ackermann said at a conference in Frankfurt, Bloomberg reports. "As long as uncertainty holds whether the agreements can be quickly and fully implemented, the nervousness on the market will remain."
Short-term issues notwithstanding, the steep decline in Treasury yields is perhaps the single-biggest issue stock bulls are pointing to amid the recent turmoil. Compared with a less-than 2% yield on Treasuries, stocks are objectively cheap relative to bonds and should outperform in the long-term, as Henry and I discuss in the accompanying clip. (See: Jeremy Siegel: Stocks Are Cheap! Robert Shiller is Wrong! Bill Gross Should've Stuck by His Guns! )
But in the long-term, we'll all be dead, to paraphrase John Maynard Keynes, and relative valuation arguments -- however compelling -- provide cold comfort to anyone long stocks in the here and now.