After some big gains yesterday, markets returned to more stability today. The S&P 500 inched up 0.11% while European indices such as the DAX were in the green. In addition, the Euro was essentially flat, sticking to $1.31/Euro.

Although the VIX dropped over 3% to fall below 18, the 10-year Treasury dipped to a yield of 1.83%. Thus, although we’ve seen a substantial decrease in equities volatility in the last couple months, investors have been flooding into Treasuries. From this standpoint, we’re in a risky investment landscape.

In Europe, Greek debt restructuring discussions have hit a temporary standstill. The question is now whether Greece can implement wage and pension reform, an impediment to its ability to pay down its debt while reducing the country’s competitiveness.

Ultimately, I believe Greece lacks the wherewithal to regain economic strength if it stays in the Eurozone. Even if it receives bailout funds, the looming prospect of a future disorderly default is simply too great a risk.

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January’s gains extended into this month as the S&P 500 jumped 1.12% while European and Asian indices were also in bullish mode.

Meanwhile, the Euro rose to $1.32/Euro while the 10-year Treasury rose to a yield of 1.83%. Although market volatility has tempered, there is still plenty of risk lying around.

The head of the IMF recovery effort in Greece, Poul Thomsen, conceded that austerity will only have a negative impact on Greece. Although the debt needs to be cut, stunting economic growth will put Greece back even further. As I’ve previously reiterated, the cards are stacked against Greece and throwing more bailout funds is no guarantee that Greece can get back on a fiscally responsible track.

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There wasn’t much moving and shaking in the markets today despite a gloomy atmosphere in Europe. The S&P 500 dipped a mere 0.05%, but the index had its best January performance in 15 years, returning 4.36%. Although it might be The January Effect, please read my recent piece about the importance of a long-term outlook.

Once again, the 10-year yield fell, indicating a risk perception as investors fled to fixed income. Finishing the day at a yield of 1.80%, this is the lowest level in nearly 4 months.

The Greek finance minister has now alluded to a deal where bondholders may have to take a haircut in excess of 70 percent. This is surely a big potential setback from bondholders, but more importantly, it doesn’t mean that Greece’s debt issues will be solved regardless of whether or not it receives additional bailout funds.

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Although falling deeper earlier in the day, the S&P 500 only finished down 0.25%. Overall, the S&P 500 hasn’t greatly fluctuated as of late, but the VIX index spiked over 5%, indicating that more volatility might be coming. Nevertheless, European and Asian indices were down by a larger magnitude.

While currencies and commodities were relatively flat on the day, the 10-year Treasury fell to 1.84%, signifying more flight to safety. Understandably, the situation in Greece, which is the main focus at the moment, has spooked a number of us.

The friction in Greece continues as the Greeks demonstrated strong resistance to the German proposition that the Eurozone take charge of Greece’s budgetary matters. However, as Greek PM Papademos highlighted, the country will face bankruptcy if it can’t obtain additional bailout funding. The bottom line is that Greece has been inept in instituting fiscal reform, unable to meet its budget targets and failing to demonstrate that it can be financially self-sufficient in the long-run.

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