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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- The troubles in Italy, Portugal and Greece are shockingly serious. How serious? Many insist that these three little piggies will eventually succumb to disorderly bankrupties, causing Armageddon for world stock markets and the global financial system.
For the doomsday crowd to be right, however, everything has to go wrong. Ev-er-y-thing!
For instance, coordinated eurozone plans for aid to Greece would have to go completely awry. Simultaneously, Italy would have to fail at every turn to shore up its balance sheet; then, the country would have to be turned away by European policymakers because Europe wouldn't have the capital to "bail out" Italy.
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Of course, China would have to forgo its own well-being by sitting on the sidelines. For that matter, all of the other nations in the world -- Germany, Japan, the U.S, Russia, Brazil, Switzerland, the U.K., Australia -- would have to stand idly by as a "sovereign debt crisis" decisively destroys the global economy. And this sounds likely?
Financial markets may or may not panic if Italy drops the ball. Yet the rest of the world's sovereignties, albeit grudgingly, would certainly pick the ball back up off the floor. Indeed, Italy is "too big to fail," which is precisely why it won't.
So what can volatility-weary investors do? Have your own personal eurozone plan. Specifically, use stop-limit loss orders on your holdings to reduce the risk of any one asset becoming a hopeless liability. If you're not comfortable with actual stop-limit loss orders, employ key moving averages (trendlines) as part of your unemotional sell discipline.
If you still believe you're overexposed after stop orders and trendlines have raised your cash level, draw a simple line in the sand. Perhaps you would choose the October stock market low (
S&P 500 at 1097). If it doesn't hold, neither do you.
Although I have a plan for dealing with disaster, I don't believe we're heading back to the October lows. China will declare victory over inflation in the near future, allowing for an easing of fiscal and monetary policy. The European Central Bank (ECB) has no choice but to reduce rates too.