Grand Plan Falling Apart?

Well, it looks like the grand plan is not looking so grand anymore... maybe more of a theoretical idea and hope...

Here's more of the reality:

Italy - Berlosconi today only had 308 out of 316 budget votes and doesn't have the majority to survive a no-confidence vote. If he is gone, will the technical government really be able to implement austerity reforms? Italian Government Bonds 10-Year Yield has risen now to 6.77%!  More uncertainty. 

Greece - Papademos now slated to head the government. Another political change. Will he be successful in implementing austerity reforms?  Will Samaras put in writing that he agrees to the bailout terms?  Will the 50% haircuts go through, and what are the long-term implications?  Will Greece end up leaving the euro and eventually go back to the drachma?  Will there be runs on the Greek banks?  More and more uncertainty.

EFSF - No countries want to volunteer funds. Leveraging it is a bad idea and possibly a violation of the EU treaty.  Can you fix leverage with more leverage?  Set up ANOTHER “Special Purpose Investment Vehicle?”  Will public/private investors and China participate?  Not enough firepower.  Who wants to buy these bonds if the EFSF may end up insufficient and going broke itself?  More and more and more uncertainty.

Bank Recapitalization - Negative feedback loop to comply with the 9% minimum capital ratios.  Will the selling off of assets and reducing of risk shrink credit even further and drain the Emerging Markets of the projected 500 billion euros?  Uncertainty galore!

With all of the real uncertainty of new European developments, it's amazing that the US stock market has held up as well as it has.

Also, the VIX is still hovering around 30, which can either be incredibly bullish or incredibly bearish.

Bullish VIX:  Historically a VIX this high is unsustainable and has provided good entry points for long-term investors.  It's been painful for bears who have been in all cash.  That's why I wouldn't recommend 100% cash, in case this market goes up from here.  NO ONE can predict the markets day-to-day accurately, so always be prepared if you're wrong.

Bearish VIX:  However, that's assuming that we don't double-dip. If we crater from here and the VIX goes to 80, like it did in October 2008, then this is an incredibly risky time to get in.  Cash and shorts are great.  Averaging in on the way down would be a good way to take advantage of pullbacks.  If we fail to break convincingly above the 200 day moving average on the S&P (around 1275), then look for a repeat of 2007-2009 crash, maybe even a worse scenario since we're talking sovereigns now.