Monday, September 12, 2011

Europe Continues to Tumble as French Banks Hit Hard on Greece Default Idea

The whole Greek tragedy is getting a bit tiring after two years of discussing it.  As mentioned Friday, it was leaked Germany was preparing to ring fence their banks from a Greek default, which was a change of direction after years of insisting no one in the EU would be allowed to fail.  Of course the issue now is other countries - especially France - now have to do the same thing and backstop their banks ala USA 2008, as these institutions are carrying paper on their balance sheets which is worth far less than they have been forced to admit.  Today the French banks have taken it on the chin as I suppose 'the market' is demanding the same from France as Germany did last week.

  • Mounting fears over the possibility of a Greek debt default and signs of division within Europe's policymaking circles over how to deal with the crippling crisis combined Monday to send bank stocks sharply lower.
  • Senior German politicians have suggested publicly in recent days that an orderly bankruptcy of Greece may be part of a solution to the country's problems. The notion, which has been a taboo so far in Europe's handling of the crisis, has spawned uncertainty in financial markets.
  • .....many of the continent's leading financial groups, such as Deutsche Bank and BNP Paribas, down some 10% as investors worried over their exposure to potentially bad European debt. 
  • France's Societe Generale, which dropped 10%, tried to calm investors with a statement saying its exposure to the euro's more imperiled economies is diminishing -- at euro3 billion -- and that it was accelerating plans to raise over euro4 billion ($5.4 billion).

Once 'the event' is over (with Greece) it will be interesting to see where 'the market' focuses on next i.e. do attacks on Portugal begin anew? Or are they considered in better shape?  Whatever the case it appears central banks are going to be busy backstopping everything on Earth once more.  Ironically the resignation of Mr. Stark Friday - who was against bond buying by the central bank - could open the door for the ECB to go full Bernanke down the road.  (which of course the markets will love!)

As for markets the levels I've been speaking about the past few weeks are still in play, 1120(ish) and then 1100 (intraday low on Fed announcement day). With 3 big bad days in a row (including today) we're again prone for a snap back rally at some point mid to latter week perhaps, but it remains a market only for short timers. Also later this week markets should begin their Pavlonian giddy reaction to anything Helicopter Ben does - which is certain to be 'Operation Twist' a week from Wednesday.

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