Spain panic triggered global mkt sell-off: Solaris AMC

A wave of bad news from the eurozone has set back equity markets worldwide this past week. According to Tim Ghriskey of Solaris Asset Management, Wall Street and European markets have experienced a heavy sell-off, mainly due to the concerns arising out of Spain and it debt problems.

In an interview to CNBC-TV18, Ghriskey says that pessimism about Europe’s outlook has hurt investor sentiment. However, he believes the overall trend line for the market remains in an upward direction. “We don’t think there is a significant downside for US stocks because of the equity yield support,” he said. He further adds that the long term outlook for equities looks positive. Meanwhile, Ghrisky says that the environment in the eurozone is not as bad as it seems. He believes that there has been an improvement, but that it hasn’t reflected in the data as of yet. “It is slow, it is probably slower this time of the year because Europe tends to go on summer vacation, but we do think there will be progress in Europe,” he explained. For a more sustainable solution though, he says that there needs to be financial stability in Europe, restructuring of the banking system in Europe and a restructuring at the euro. Below is an edited transcript of his interview with Menaka Doshi. Q: What do you make of how markets are reacting to all this panic from Spain? A: It is quite a selloff and it is more certainly Spain that has caused the weakness in the US markets over the last couple of days. The Moody’s downgrade of Germany, the Netherlands and Luxembourg certainly has contributed to that. Also, there is a major hedge fund in the US called Bridgewater and their economist came out with a very pessimistic outlook for Europe and that has contributed also to a bit of a panic selloff here. But having said all that, the markets are up from their recent bottom of early June. The trend line does appear to be moving in an upward direction, so we don’t think there is a significant downside for US stocks because of the equity yield support, the dividend support on equities specifically. It is really the best option for investors out there and a longer term outlook we believe is quite positive. Q: When you look at markets in Europe or the US, do you see them as markets that are picking up the scent of a potential large scale bailout of Spain? A: You are right, there isn’t a real breakdown. Despite Bridgewater’s letter, we actually do see progress coming out of Europe. It is slow, it is probably slower this time of the year because Europe tends to go on summer vacation, but we do think there will be progress in Europe. What we are looking at really is a period here where all the negative news is out and some of the good news which we think is ahead of us. In other words, the improvement hasn’t really appeared yet. We don’t think we are going back to the Stone Age in Europe, we think there are actually opportunities there. You see a lot of smart money moving into Europe and buying up selected assets, especially commercial real estate, where we think there is a big opportunity. Q: What is that good news that you are looking forward to over the next few weeks or months? A: It is more in the months or quarters; it will probably end up taking years. That is financial stability in Europe, restructuring of the banking system in Europe and a restructuring at the euro. The euro was obviously not stress-tested well when it was created like we have seen over the last couple of years, so the euro has to be restructured. It is not going to be easy, it is going to be painful politically, socially and economically for many European countries, but inevitably we think it has to occur or Europe is simply going to go nowhere.