The European Debt Crisis: Was the Rescue Package Enough?

The stock market's initial reaction appears to offer the answer of "yes", but then again we saw fairly convincing rallies early on in the financial crisis in 2007 (as I always like to remind people, our problems began in the summer of 2007, not 2008).  Equity markets often give false signals, perhaps more frequently than other markets.

As of right now, it does not appear that European debt markets are buying into the program here.  For instance, we have not seen Italian bond yields gap down:

The same troubling thing holds true in Portugal:

There rates are down a touch, but still nothing noticeable, considering that they are trading close to 1,000 basis points above German 10-year bonds.

The issue, as I see it, is a similar one to what we went through in 2009.  Let's back up for a moment here and state clearly why sovereign debt defaults are important to us: they threaten the health of major banks.  That's the whole reason that even more stable countries live in mortal fear of a Greece or a Portugal going under.  Banks like buying sovereign debt for their reserves due to its low default rate.  If the debt they buy becomes distressed so they have to mark it down or if the borrowers default, that undermines the banks' capitalization and they need to, at best, issue more shares to recapitalize, which dilutes the value of existing shareholders.  In a worst case scenario, the whole rotten thing comes crashing down and the banks fail catastrophically.  I think that we all know the consequences that stem from that scenario.

As such, just like the situation we faced in early 2009, this is about whether the banks can reasonably attain enough capital to recapitalize to offset massive losses coming down the pike.  In our case, it was the continuing doubts over the mountains of bad mortgages that banks were carrying on their books above the likely value that they could realize those assets at.  Investors speculated for weeks and months about just what kind of hits our banks would have to take and it caused our markets to go into a total tailspin that took the Dow down to 6,500 at one point.  Just an aside, there is no rational model by which one can call that a fair price for the market at that point.  What came along to really solve the issue were the stress tests of our banks that detailed the amounts our banks needed to raise in additional capital in order to survive two differing economic scenarios.  While there was criticism over the rigor of the tests at the time, it really did prove to be a turning point, along with expansionary monetary and fiscal policy that had begun just before that.  They put a number on how much the banks would have to raise and investors could use that figure to pivot their decision making on whether or not to buy shares.  Before that point, it had been somewhat of an unknown.

The markets had already begun a recovery before the release of the test results in May 2009 (the bottom was March 9th), including a massive rally in bank shares, but as the year went on, the financial stocks eventually added another huge leg to their rally in the summer as the recapitalizations went along without much incident.  From then on in, the markets regained confidence, and things began to return to some level of normalcy.  There were many other measures taken, so I don't want to exaggerate the importance of the stress tests, but the point is that once the health of the banks was assured, the markets and the economy at large could move on.

The key to Europe is whether the banks will now be sufficiently recapitalized.  The stress tests there have been of questionable credibility, often only focusing on macroeconomic conditions and not pricing in what would happen with large write-downs of sovereign debt.  That has started to change in the most recent iterations, but some analysts think that the stress tests are low-balling the needed capital by as much as $200 billion.  As long as investors are not convinced that the banks' balance sheets are now as secure as the Maginot Line... wait a moment... as unsinkable as the Titanic... as solid as the walls of Constantinople... erm, well, pretty safe, we will be prone to a renewed crisis.

Of course, history may well show that this was the turning point and many of the naysayers have been wrong. After all, credit spreads here did not really start coming in until a full month after the stock market bottomed in March of 2009.  (CLICK ON IMAGE FOR LARGER PICTURE)

                             

Spreads did not begin their true downward trajectory until early to mid April and did not actually reach quasi-normal levels until October.  In other words, it could be a while before we really know.  At this moment, I am doubtful that we have seen the last of this crisis.

A Rough Stretch, No End in Sight

With the Euro contagion spreading to Italy and even Belgium (its spread over German bonds is nearly 200 bps), the financial crisis in Europe is deepening at the same time U.S. growth seems to have hit a firm wall. What's worse is that policymakers around the world are doing all of the wrong things. In the face of a private sector unwilling to unleash spending and investment, governments are retrenching. Some have to, others don't.  Worse yet, when they are retrenching they are making foolish choices that seem to maximize the negative impact of their actions.

Little wonder, then, that the markets are utterly spasming at the moment. The situation seems to call for it. Some measure of bounce may occur for a brief period in the next week or so, but I expect a renewed sell-off before things bottom out in a more sustained way.

I almost forgot some very depressing news, which is that Jean Claude Trichet, head of the European Central Bank and one of the most powerful policymakers in the world, thinks that our primary concern is inflation.

As far as the debt ceiling debate in this country, the markets no doubt were spooked that it even occurred and were probably even less happy about the fact that the outcome was so pathetic and wrongheaded. I endorse the views of this Bloomberg link in very nearly their entirety: http://www.bloomberg.com/news/2011-08-05/world-market-rout-is-a-loud-no-confidence-vote-in-leaders-view.html

Oh for the love of God. Belgium, too?

http://www.ft.com/cms/s/0/d9b8a3c0-1cba-11e0-a106-00144feab49a.html?ftcamp=rss

Belgium has long had heroic levels of public debt and recently an ailing financial system, too. This isn't a surprise, but when you look at a situation where Greece, Ireland, Portugal, Spain, Belgium and possibly Italy are all on the cusp it certainly does make the entire Euro region appear as a fetid turd. Take this together with the fact that Germany is growing increasingly unwilling to engage in bail-outs and that the German public is wondering why they continue to subsidize the weak members of the Euro-zone, it is becoming quite plausible that the Euro area will split apart. For some countries, it's even advisable

Now, while I have not been in the camp that says a run on U.S. debt is imminent, I do think that Congress' bold assertion that we may continue to cut taxes in the midst of a mammoth deficit raises the prospect. As we have control over our own currency, our ability to deal with a potential run is a lot stronger than that of other countries. Clearly, there is no sign of trouble in our bond markets at the moment, but debt crises can set in awfully quickly. Fortunately, we have a Federal Reserve that is able and willing to intervene as needed. Theoretically, if the market really freezes up, they can intervene and stabilize any blips.

By the way, in case you had any curiosity about the outcome of the next Irish election, don't. It won't even be close: http://www.irishcentral.com/news/Latest-poll-shows-continued-drop-in-support-for-Fianna-Fail--113189849.html

Illiquidity vs. Insolvency and The European Crisis

There's a big distinction that needs to be made between illiquidity and insolvency when it comes to debt crises and it is useful for thinking about when looking at Ireland.

A crisis of liquidity arises when some kind of short term shock prevents an entity from making a regularly scheduled payment or a huge one-time crisis causes a huge blip in the flow of funds. For instance, let's say I normally can roll over a $10,000 loan every 12 months without issue, but suddenly the bank says no, leaving me with a $10,000 hole in my balance sheet. I can liquidate financial assets, but I don't have enough time to arrange everything. My friends can look at me and say, "Sure, here's 10 grand. Pay us back soon." and this is no big problem for me. A few weeks later, I am done liquidating assets and I have paid them back. This is actually kind of similar to what happened to AIG, incidentally.

Let us look at a case where I would be insolvent. Let's say I had a $500,000 mortgage and I could service it with a $120,000 income fairly easily. However, my income was based on a bunch of one-time incentive pay that I won't get again and my more regular pay is about $50,000. Combined with the mortgage, I have a large car payment, high property taxes and so on. What's more, because the economy is bad, I can't reasonably expect to increase my income any time soon. Over the next year, I am obligated to pay more than my entire gross income in these various payments. Even worse, I am $200,000 underwater on my mortgage because of the real estate slump. If you came along and said, "I'll give you a credit line of $20,000 that you have to pay back in three years." I would tell you it just doesn't matter. To use a technical term.... I'm screwed.

Europe's approach is very much like the latter, but with an added twist. They give you the credit line, but force you to take a pay cut in the form of austerity policies that reduce your tax base through deflationary forces. In the case of Greece, they deserve to suffer from austerity policies as they were profligate. Ireland, on the other hand, was not and everyone is paying for the sins of overly leveraged, irresponsible banks that took advantage of their size to maximize risk and doing so while knowing the state would inevitably bail them out. Ireland will never be able to pay it back, not with an economy relegated to depression. Ireland should default, or just come close to it, so that Europe gives more favorable terms to a country that doesn't deserve what is happening to it.

The Irish Financial Crisis Becomes a Political Crisis

http://www.nytimes.com/2010/11/23/world/europe/23ireland.html?_r=1

This has been an ongoing concern of mine for most of the European debt crisis. First, universal austerity simply does not work as a strategy for dealing with massive debt levels as its deflationary influence essentially digs the hole deeper as you are trying to get out. Secondly, it's politically damaging considering that it will coincide with a severe economic crisis. Ireland is in the midst of what can only be described as a depression and that will not correct anytime soon. In fact, it will get much much worse considering the magnitude of their fiscal contraction. The incumbent government will lose the next national election considering that the prime minister has a whopping 11% approval rating from the last poll I saw. Frankly, they should lose given that they have been in power for the boom and now the collapse.

This really is an issue where many Irish sense that their nationally sovereignty is at risk in these bailout agreements. At the same time, they really don't have a choice, but then again neither does Europe. The EU cannot allow Ireland and its banks to fail due to the collateral damage. It will be interesting if Ireland decides to take the approach that they will limit what austerity measures they put in place because they realize their importance to European financial stability. In the long run, Ireland's economic situation will get so bad that it risks severe political instability of the sort that we haven't seen in a while in most developed countries. They already have a 14.1% unemployment rate and that will not get better with the austerity measures being proposed.

As far as the EU's approach on all of this, I am doubtful of its long term viability. Basically, Germany and France are on the verge of backstopping Greece, Ireland, and then Portugal and Spain. If and when Spain becomes part of the mix, I really don't know that they are good for the money. At the same time, they are pursuing deeply deflationary policies which pose a particular problem in the context of a deflating asset bubble. The deflating real estate prices in Ireland, the UK and Spain are one of the major causes of the ongoing banking problems and austerity will only contribute to further deflation of those prices. As this pain continues, it will be difficult for governments to maintain policies of retrenchment.

Frankly, there is a serious risk that Europe is entering a deflationary spiral of a fairly severe magnitude, which will invariably lead to continued political instability.

Ireland and Financial Contagion

So, I believe it is time to bring out this table again of U.S. banking exposure:

As you can see, our banks have a fair amount of exposure to Ireland, but more worrying is this article from the Daily Telegraph. The exposure that British banks have to Ireland may be sufficient to sink them in their already battered state. What's more is that the current government in the UK is already somewhat hobbled by flagging approval ratings in the face of budget cuts. I am not certain how much stomach there is for potentially another big round of bailouts. International coordination might take some of the sting out of it, but we are looking at another round of substantial bailouts that are quite unpopular. Apparently, the IMF stands ready to save the day. The indications are that Ireland is actually the reluctant party and that the EU and and the IMF have been attempting to push for a bailout for some time.

Fundamentally, a bailout is needed to prevent a severe near term financial crisis in Ireland. While many have tried to point out that Ireland's government is funded through mid-2011, that is only relative to current spending. Ireland has guaranteed basically all deposits at domestic banks, meaning that widespread failures would trigger significant immediate government spending. In short, if the banking crisis gets bad enough, there is a solvency issue.

Frankly, I'm amazed that the Irish banks are still standing after a run amounting to 11% of deposits has already taken place. We'll see if an international backstop stops the bleeding. If you want to speculate on worthless Irish bank stocks, have at Anglo Irish (AIB), but what little is left of the value there is probably at risk even at these levels. At best we are probably talking serious dilution.

Europe Won't Stop Stalking Us

I was browsing Calculated Risk this morning as part of my normal morning crawl through financial websites (it actually relates to a portion of my work assignment so it isn't just leisure time for me) and found this very succinct breakdown of how the European debt crisis has not eased.

Obviously, the financial markets responded accordingly sending bonds and gold up while stocks declined. I guess now is as good a time as any to pull out my favorite little chart again:

Click to enlarge

So, as we can see here, there is a much greater reason to fear European contagion than Chinese contagion, at least from a financial sector standpoint. Though I don't have data on this, the really worrying thing is the amount of exposure that British and German banks have to the highly stressed countries. Perhaps more concerning is that the iron core of the EU, Germany, is probably not politically able to embark on further interventions. Angela Merkel's government is quite unpopular now (though so is nearly every incumbent government save Brazil's) and likely would fracture under the weight of another intervention. 

At this point, I think Jean Claude Trichet may want to reconsider his adherence to some fairly odd economic theories. He has placed far too much faith in what has been an anomalous economic performance out of Germany that has much more to do with little burps and belches of export demand than anything else. Domestic demand is flagging there as it is elsewhere in Europe. 

When viewing these sorts of crises, it's always hard to judge whether you are looking at Brazil in 1998, which bent but didn't break, or, say, Argentina in 2002. The telltale sign is to look for political instability in the afflicted countries and there we are seeing some twinges. If there is a cascade of government collapses then the rolling series of defaults long feared would seem likely. So far, it looks like that is under control, but it bears watching. 

European Bank Stress Tests vs. U.S. Stress Tests Part 2

I think that these stress tests are the equivalent of only testing what happens to a patient's heart when they walk ten feet. Bloomberg has a good article on the subject here: http://www.bloomberg.com/news/2010-07-23/eu-bank-stress-tests-fail-to-reassure-investors-wary-of-capital-criteria.html

In our stress tests, several banks were found to be in need of tens of billions in new capital, which they subsequently raised from markets that were satisfied about the stress tests' rigor. In this case, I rather doubt markets will be satisfied once they have time to digest the results.

Is a double-dip recession likely?

Short answer, I think, is no. It is extraordinarily difficult to think about what the impetus for that would actually be. There is certainly not an overabundance of inventories as evidenced by very low, actually historically low, inventory to sales ratios. There won't be an interest rate shock anytime soon as deflationary tendencies continue to keep the need for interest rate increases down. In fact, the plunge in long-term bond rates we have seen recently will, if sustained, prove stimulative to the housing sector.

A major economic shock elsewhere in the world is similarly unlikely to cause a recession. As I have mentioned previously, the United States is not a major exporter in proportion to its GDP. Even a 30% decline in exports to China would represent a $21 billion hit to output. If Europe absolutely cratered all at once, we might lose a percent of GDP or so. It is actually difficult to think of a time when the United States has fallen into recession due to a major financial panic elsewhere in the world in the last 100 years. In the 19th century, financial market panics in Europe did have deleterious effects here, but you would be hard pressed to find one since. The one possible exception is if Europe sustained a series of sovereign defaults and its banks absolutely buckled without assistance from the ECB or member states. It is possible to conceive of a financial contagion effect under those circumstances could cause a renewed financial crisis here. If that were to happen, a recession would be likely.

Now, then, what do the recent data suggest? This is confusing as all hell (technical term there). Jobless claims remain elevated even though these levels don't make sense given what else we know. Consumer spending, after some strong months earlier this year, seems to be flat in the most recent months. Job creation as measured by the private sector job gains has decelerated from a few good months earlier. Manufacturing still appears strong, though might be slowing now that the inventory cycle is complete (a phenomenon that we noted here earlier). All of this suggests that growth will be slow over at least the next six months. The stock market's last 5-6% sell-off I think is a reflection in this re-evaluation of conditions. One cause of this may well be that money supply has been flat for some time as the Fed has attempted to ease off some of its earlier stimulus. It has also withdrawn itself from several of the emergency programs. A tightening of money supply usually has a powerful effect and that may well be at work here.

Part of the Fed's quandary is that it did increase money supply rapidly in response to the recession and it has been nervous about a potential outbreak of inflation some time down the road. As such, when the data were more positive, they began to step off the pedal a little bit. However, the transmission mechanisms for money supply (namely the banking system and related credit markets) remain entirely broken or at least gummed up. We can see this in the absolute collapse of the velocity of money (sorry, Monetarists, this is an empirical fact that the velocity of money is not a constant). As such, the outlook for inflation is very benign. In fact, it is so benign that I think we are seeing the effects of deflationary expectations beginning to take root, particularly on the part of businesses.

One distinct possibility as a result of the fundamental deflationary tendencies in the global economy is that, led by the needless European austerity measures, we could enter a very protracted period of low growth. The principal cause of this is that nominal debt burdens still remain high and without nominal wage increases these burdens are very difficult to pay down. As such, consumer spending is going to be kept under wraps in a deflationary environment.

In this sort of environment, bonds and cash do look more attractive than they otherwise would at present interest rates. Stock prices are based off of nominal profits and those are harder to come by in an environment of non-existent inflation and weak pricing power. I have to confess that I did not expect that the European governments would so rapidly enact such massive anti-stimulus as they have, but alas, it is here.

Hopefully, the central banks will realize what the larger threat is and become far more dovish on inflation than they have been. If one is truly worried about a sovereign debt problem, the answer is higher inflation, not deflation.

In any case, recent events should give one some pause as the rate of deterioration in growth was more rapid than one could reasonably expect. A double-dip recession is unlikely (as James Hamilton at Econbrowser points out), but there is a distinct possibility that we enter a prolonged period of lackluster growth due to policy making errors in Europe and, to a much lesser extent, here.

European Bank Stress Tests vs. U.S. Stress Tests

I must confess some ignorance on the exact nature of the stress tests being conducted in Europe. When we conducted ours, the criteria were laid out in a fairly robust and comprehensive manner. Everyone could see what assumptions were being used and, though many scoffed at the scenarios as being too rosy, it would appear that there was some measure of success.

From what I have read, such as this post from Naked Capitalism, the tests do not include possible losses that the banks would incur from sovereign debt defaults. In other words, say the fictional Bismarck Financial had $50 billion in equity, but $75 billion in holdings of sovereign debt from Greece, Portugal, and Spain, they would be wiped out in a rolling series of debt defaults. However, under the stress tests (as I understand them), these exposures would be excluded. That would have been similar to if in our own stress tests we had excluded the possibility of further house price declines and rising mortgage defaults. As it turned out, the estimates for house price declines in our own stress tests were actually much more pessimistic than what panned out.

This brings me to a point here for those looking at Europe right now. Our own stress tests, despite being widely mocked by the more pessimistic analysts and observers, actually did  a good job of quantifying the unquantifiable. The most dangerous aspect of early 2009 was that no one knew the exposure the banks were facing and financial markets froze under the uncertainty. It was nearly impossible to raise capital to replenish the equity positions of these companies. The stress tests provided a benchmark from which investors could use differing assumptions on whether or not a bank could be saved and decide then whether to supply it with more capital. As it turned out, as I recall anyway, not one of the major banks tested has since failed or had to be swallowed up by another in an emergency basis in the way that National City and Wachovia were in late 2008.

This was all possible because the standards being used were transparent and they were actually fairly sensible. I liken it to if a company forecasts that based on 4% GDP growth they expect to earn $4.50 a share. You can say that's nonsense and you think the economy will only grow 1% so they will earn less, but it's all out in the open and the market can decide, based on good information, what price capital can be raised at. From this perspective, the European stress tests do no seem adequate and I think it would be wrong to apply the relative success of our own experience to Europe.

The Peculiar Allure of Gold

Anyone who knows me knows that I have a pathological hatred of precious metals so take that into account when I delve into a brief discussion of gold. Let me first get something out of my system by saying that, in my view, metals should only be valued by their relative rarity and usefulness in industrial purposes. At an emotional level, to me, not much else makes sense, but I digress.


In any event, gold has been the investment of the last decade, unless of course you invested in overseas stock markets. Brazil from the lows of 2002 kicked the hell out of gold. "Kicking the hell out of" something is a technical investment term used to discuss relative performance. Yes, it is true that gold blew away stocks in a bad way in the 2000s. Its proponents point to a few attributes that gold has that explain this performance. These are, namely:

1. Gold is the ultimate inflation hedge. Your money will not lose value if it is invested in gold.
2. Gold is the ultimate crisis hedge. When people get scared, they buy gold.
3. Gold is the ultimate hedge against a falling dollar. When people lose faith in "fiat" money, they will turn to gold.

Proponents argue that these are all absolutely immutable laws of the market and that these relationships always hold. In fact, some argue that there is a strict mathematical relationship.

Of these arguments, only the third really holds any water for me, and even that I am slightly skeptical of. Let me address these in order.

More after the page break.

Weekend Reading: Bonds a Bubble?

There has been a fairly consistent refrain for two years or even longer that treasuries may indeed be overpriced, meaning that interest rates are consequently too low on long term instruments. This interesting article from MarketWatch hits on this idea yet again.

One thing worth considering is what it would mean if the long term treasury market actually did go bust. What are the implications for your investments? Unfortunately, this is not a pleasant prospect and it leads to one wondering where exactly their money should go. I actually don't have any particularly firm answers on this front, to be quite honest, but maybe by talking it through we can uncover some possibilities.

So, let's just say for a moment that for one reason or another, long term bond prices suddenly collapse. This could be because of worries about the solvency of the U.S., suddenly higher inflation expectations, or much more attractive investments elsewhere. The last two are more like than the first. Basically, if investors either need to abandon the safety of treasuries to beat inflation or if they feel that other markets offer stable enough returns that they can leave their fortress of U.S. treasuries, bonds will rout. How vulnerable are bond prices to changes in long term interest rates? Well, if rates on the 10-year rose from 3.30% to 5.00%, a $1,000 investment in treasuries would turn into $866.86. Ouch.

Interesting Perspective on Bottom Fishing in Europe

There's a good Wall Street Journal article about the dangers of some of the more popular European ETFs. The principal issue that the authors highlight is that these indexes may be too heavily tilted toward the banks. As someone who lost a fair amount of money on bank stocks during the worst of our financial crisis, I am more discerning about bottom fishing than I used to be, so this caught my attention.

I still think there might be some money to be made in the broad ETFs like EWP, but indeed the better way to play this rout of European stocks is to look for the companies least effected by the crisis, but that have gotten destroyed anyway. The article mentions Telefonica (TEF), which has gotten absolutely clobbered and now yields over 8% with an 8-9 PE, depending on which earnings estimates you use. That's not bad and also Telefonica is unlikely to suffer severe damage. Communications outlays are not as vulnerable as other forms of consumer discretionary spending.

The same goes for stocks here. United Technologies (UTX) is down from $77 to $66 and it really isn't that likely to be effected by primary, secondary, or even tertiary effects of the European crisis.

What do you all think? Does this view make sense to you?

German Regional Elections and Their Consequences

It pays to follow results such as these when we are in the middle of a crisis. Whatever you think of Angela Merkel, the rout of her party and its coalition partners in the North Rhine-Westphalia regional elections might spell deepened trouble for financial markets this coming week. Her government's backing for the bailout package for Greece seems to have a lot to do with these election results. As such, continued sovereign intervention in the European financial crisis appears doubtful. This is especially true as the most recent election result in the United Kingdom still has not produced a definitive outcome, and whatever coalition government emerges will be too weak to take on something as unpopular as bailing out fragile southern European economies. 


Stay tuned and keep your eyes peeled. This may have already been anticipated by financial markets, but one cannot be sure. 


Update: It appears given market futures that this is not having a huge impact on the markets and that they are instead focusing on the larger than expected responses by the EU and ECB in the last 24 hours. I'm glad to see that Jean Claude Trichet lost out and that the ECB will be providing assistance to governments should they be shut out of the private bond markets. His prior unwillingness was the cause of the Thursday and Friday blood baths. 

Today's Ridiculous Performance and Lessons From It

I had the misfortune of being at a very boring series of presentations when all hell broke loose today, but I've read enough about it now to make some comments on it.

Whenever you are going through a period of market stress like we are, the market is vulnerable to truly massive daily swings. It's similar to setting off a firecracker behind someone suffering a panic attack. Today, there were some, to put it bluntly, bullshit trades that rapidly sold off major issues such as Procter and Gamble by ridiculous amounts. Just in case you don't know, P&G at one point today fell from $62 a share to $39 a share on absolutely no news whatsoever. On a stock with 2.9 billion shares, that erases $67 billion in market value in an instant. When a stalwart like P&G drops that much, many programmed trades will be slated to sell as well largely because that big of a drop in P&G leads to a major decline in the DJIA and S&P 500.

Additionally, those not engaging in program trading will get extremely afraid and they will liquidate. Of course, at those discounts people will rapidly come in and snap them up. Accenture(ACN) getting knocked down to a penny a share will trigger buying, for instance.

Now, what should you do in periods of market stress, such as when we are worried about a rolling series of European sovereign debt defaults? The answer is that if you have some stocks that you are looking at and want them at lower prices, keep some long term limit orders out there at 10-15% discounts. If the panic trades don't occur, no skin off your nose. If they do, you make out pretty big. The trick is just to make sure that you don't commit more than your brokerage balance.

Because we have had a fairly sharp decline in the past several days, there is the possibility of margin calls tomorrow or early next week so there is the possibility of a less dramatic, but longer lasting repeat of today. The European debt crisis is going to come to a head in a hurry. Right now if you have a cash position, such as myself, start looking at some stocks that you have been eyeballing, but have not been enamored with the prices. Put out some low limit orders (though don't do 30-45% discounts) on your favorites. 5, 10, 15% discounts are probably good ideas right about now.

If you don't want to be as adventurous, there is the possibility that there may be some modest gains left in treasuries, for which you can buy TLT. This, in my opinion, is not the end of this Euro-induced panic yet, but the worst of today was, well, bullshit.