Just 5.5%

That's right. We are only 5.5% below the recent highs of 1420.

Does that sound like the proper risk premium for the European situation???

Consider this. Just the recent softening of US data would be reason enough to trim 5.5% off the highs. So in my view there is absolutely no risk premium in place for a debt debacle in Europe. Nor the ripple effects of the recession they are in now, which may very well get worse.

This is tricky territory for me because I am a long term bull who just so happens to appreciate the tenuous state of things making me a short term bear. So even though I think the European debt situation will be contained in time, there is still a 10-15% chance that their politicians botch it up leading to a Lehman type implosion.

Even with no implosion, there is about another 20% chance that the European economy slips into such a steep recession that they export their troubles to other economies around the world.

Adding it all up there is a 65-70% chance of things being fine with US stocks free to make normal annual gains. And then there is a 30-35% chance of stocks being decimated over the next year.

Right now, this adds up to greater likelihood of downside in the short run. I hope to be wrong. And look forward to European leaders rolling out effective programs to contain their man-made mess. Until I see higher odds of that I will be hanging out in my bear cave.

Featured Commentaries
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Best,

Steve Reitmeister (aka Reity... pronounced "Righty")
Executive VP, Zacks Investment Research

Today's Top Stories: Monday- June 18, 2012

ZACKS RANK BUY STOCKS

• Aggressive Growth - Jazz Pharmaceuticals (JAZZ) has beaten the Zacks Consensus Estimate in seven of the last eight quarters with an average earnings surprise of 6.26%. Read More...
   
• Growth & Income - Service Corporation International (SCI) announced a 20% increase in its regular quarterly dividend to 6 cents per share. It currently yields a solid 2.1%. Read More...
   
• Momentum - Mellanox Technologies (MLNX) Zacks Consensus Estimates for 2012 and 2013 shot up 63 cents or 71.6% to $1.51 and 57 cents or 47.0% to $1.78, respectively. Read More...
   
• Value - Saia Inc. (SAIA) is a value stock with a forward P/E of 13.7, is expected to see triple digit earnings growth in 2012 and has momentum as shares are at a 2-year high. Read More...
   

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PeopleAndPicks.com:

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• CONTAGION RISK RUNS HIGH @ CNNMoney.com
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