AVP

Feeling a bit better about the prospects of a successful buyout of Avon Products.  The stock is up to 21.15 which is still a significant discount to the current bid of 24.75.  There is also a chance another bidder emerges.  Downside is limited here, I think, but it is still a speculative bet and should only occupy a small piece of the portfolio.

Stocks in general feel pretty ugly.  JP Morgan's disclosure should come as no surprise that big bets are still being taken.  What could be new information is that Dimon was an influential voice for deregulation which has now been impugned.  Further evidence that bank valuations are unclear and on a downward path.

Europe is not helping matters, but they are not alone.  There is an overall feeling that developed nations are on an unsustainable spending path and that debt loads are too high.  Restructuring is painful and necessary.  Companies have been dealing with efficiency far longer than the government has and are much better at it.  There will be volatility, but try to take advantage of it by buying companies you believe in when prices dip.

Where the rubber meets the pavement is interest rates.  Companies need a liquid fixed income market to operate smoothly.  That can only happen when the government financing operations are smooth as well.  This is the big risk (the "black swan" in current parlance) to my scenario.  If governments become unstable and in turn their fixed income markets untradeable, then companies will have issues.

I must say I am nervous.  However, I still place a low enough probability on that type of event that it makes sense to buy on dips.  As always we are susceptible to some larger negative event - which by definition is unforseeable and therefore unavoidable except by being out of the markets completely.

For what it's worth, options markets are not going crazy over these moves and do not indicate an over-elevated level of risk.