Would that not increase the chances of a messy unilateral default?
And the star is...the Italian 10-year bond. Forget the stock market, it looks like the wrong indicator. The new star is that Italian 10-year bond: even as stocks were rising last week it didn't budge. Just follow that. It's a hell of a lot easier than trying to figure out what the procedures for a referendum under the Greek Constitution are (which is what I did for two hours this morning).
Until we get this resolved, we will be choppy. Traders kept asking: why not a bigger selloff? Two reasons:
1) We got it yesterday! The Dow has moved in a 500 point range from the point we heard of the referendum late day yesterday! The VIX went from 27 to 37. That is a lot of volatility!
2) as we enter the G20 meeting later in the week, there will be (upside) headline risk. Already, German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to talk with Andreas Papandreou, in what could only be described as yet another "Dr. Strangelove conversation." Here's how I imagine it:
"Hello Andreas! It's Angela and Nicolas...how are you? We're fine, thanks. Now, Andreas, I thought we had a deal...(long pause)....no Andreas, we're not saying you're going back on your word....Andreas, no one ever said you were insane...we don't control what's on the Internet, Andreas....you know a lot of that is nonsense....but what about our deal, Andreas? (long pause, screaming through the phone)....but, we thought you already approved the austerity package, Andreas. Wasn't there a vote in the Greek parliament? .... yes, we know you invented democracy, but do you have to vote twice?...of course, Andreas, we all know Socrates was not a German...no, I didn't know 'referendum' was a Greek word....really, there's no need to get nasty, Andreas..."
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