Red flags everywhere in the world, it seems today. In China we see credit tightening as the government tries to quell a growing housing bubble and the Shanghai Index down more than -9% since mid April.
 
In Greece we see riots in the streets and a general strike scheduled for Wednesday that could shut down schools, hospitals and the airport as the Greeks express their displeasure over the terms of the planned bailout.  Also, the Greek Parliament will debate the proposed austerity measures on Wednesday.

The Euro’s Demise Has Been Set in Motion: Are you protected?

"Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors."

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In Germany we see a majority of the citizenry opposed to the IMF/EU bailout while the Eurodollar plummeted to new one year lows.  German Chancellor Angela Merkel faces her critical regional election on May 9th and discussed an “orderly insolvency” process for future rescues in the European Union; in other words, it’s quite likely that there won’t be any more government money to prop up the other PIIGS if they head for default.  Finally, the German Parliament is scheduled to vote on the Greek bailout on Friday, May 7th.
 
Meanwhile, fear spread across Europe today as Credit Default Swaps for Spain and Portugal soared today, indicating increasing credit risk in those countries. 
 
Closer to home,  U.S. stock markets suffered their third major distribution day in a week, the VIX, the fear indicator, soared 18% and the oil spill in the Gulf of Mexico continues spreading and growing, threatening an ecological and economic disaster for a region that has had more than its share of troubles over the last few years. (Investors play the VIX through the iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX))
 
Summing it all up, we are in treacherous waters as the Greek bailout faces extreme risk of unraveling and potentially the entire European Union is at risk as the contagion spreads to Spain and Portugal.  This is not just a European problem but a global problem as there is an interlocking spider web of these countries’ debt held by banks around the world.  Think Bear Sterns or Lehman Brothers on a global scale.
 
In our portfolios we remain in the “Red Flag” mode, expecting lower prices ahead, and no doubt we’re facing more exciting days and weeks to come as this global drama unfolds. 

Written By John Nyaradi From Wall Street Sector Selector 

Disclosure: John Nyaradi is long the (VXX) ETF 

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More details on the iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX): The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract. 

VXX