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A Rational Wager on Greece: Searching for Alpha for July 2015

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I’m not the first person to note the link between game theory and current events in Greece. It’s a classic scenario as envisioned by the late John Nash, where two sides must come to an agreement. Nash argued that in order to maximize the outcome, a negotiator should act irrationally in order to scare the other side.  

But at some point, the opponent must show their hand. Today’s speech by Prime Minister Alexis Tsipras to accept some bailout terms indicates that the two sides will likely come to some agreement. 

So what’s left to move stocks if the Greek drama ends? All signs indicate a strong second quarter, with impressive wage growth and an improving housing market.  

Traders have already adjusted for a rate hike, so with that factored in the market the next six months should look much different than last quarter’s loss.  

I would suggest buying on weakness if a tradable bottom forms.   

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