Shun entering mkts with both feet on Euro woes: Solaris AMC

Tim Ghriskey, CIO of Solaris Asset Management talks to CNBC-TV18 about how the month of May has panned out for the US markets.

Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying video for more. Q: The entire month of May hasn’t turned out well. The data sequentially has been getting worse. Do we see some Fed action? What are the markets expecting?
A: The rally in the bond market over the last couple of days has been huge so the perception there is that perhaps the Fed will move and do something. Certainly, the economic data has not been great. It hasn’t been disastrous by any means either but it has weakened and that might cause the Fed to move. The drop in yields in the treasury market is record setting.
The 10-year is down to 1.6%, there are a lot of credit hedge funds who are long credit and short treasuries and there could be some short covering there. But it’s been a poor month in the US stock market, down about 6% on the month. The outlook has been tempered by the news in Europe. The concerns about both public and private debt in southern Europe and the contagion there – those are the big issues affecting the US equity markets. Q: With the 10-year yield all the way down at 1.5 levels, do you see more downside risks for the equity markets as well going into June?
A: The treasury market is something that we watch very closely as an indication of the amount of fear, the risk-off trade that’s occurring in the markets. To us this has already happened. The markets are reflecting significant weakness here at least if you look at the treasuries. The equity markets haven’t sold off that much.
What is supporting equity markets are valuations, certainly a flight to quality with capital moving into the US whether it’s into treasuries or even into equities. We think this should support equity markets here. We are not looking for significant downside as long as the news from Europe isn’t totally disastrous because contagion in Europe if it spreads, it could have an impact globally. Q: June could be the deciding factor for the euro zone. We have the Greek elections coming up; we have the big EU summit at the end of the month coming up. What are the sentiments ahead of all these crucial events?
A: There is a very negative sentiment going into the month of June and you are absolutely right - this is a huge month in terms of news coming out of Europe. It is going to be watched very carefully and expectations are very low here. Given the fact that US treasuries have rallied so much and yields are down so far and the equity markets have been a little bit supported here, we think the contrarian trade here probably makes sense.
We do not want to jump in with two feet because there is so much potential negative news that could come out of Europe so we want to be cautious but we are not looking to raise more cash at this point.