Wednesday, April 7, 2010

Pressure Points

The pressure finalllllly sent the market a little lower today. The market tried to rally in the face of horrific news floor but at least for the day, couldn't quite do it.

Greece is basically done. The 10 year is up to 7%. The three month is up to 4% ish. Basically the market is saying expect a default or some major event by the July time frame. It may be sooner than that. According to Greek newspapers big European banks are pulling repo lines. That is what happened to Bear Stearns and Lehman about a week before they collapsed. The country may survive longer than that, who knows but if that is true, Greece is toast.

The EU could still step in but as I have been saying for two months despite all the supposed press to the opposite, the Germans won't bail out the Greeks. With as much name calling on both sides of the aisles, I think that is even more unlikely now.

The bigger question is what this means for everyone else. It definitely weakens the concept of the European Union. Does it mean the Euro is doomed? What about a domino affect into Spain, Italy, and Portugal? Does this possible chain reactions start right away or is it months away. So should you be shorting hard now or on a market drop expect another rally as the time for the imminent collapse is yet to come? I wish I knew. I wish I knew.

Closer to home, Moody's downgraded Los Angeles. Yesterday the LA comptroller said they have until early May before the city runs out of cash. They are already drawing on reserve funds. They will figure out how to buy time. According to the LA Times, the mayor declared that all non mandatory safety city employees will start working three days next week. More workers underemployed.

LA isn't the only one. Detroit has an imminent bankruptcy filing also.

Are these all canaries in the coal mind or will it finally start turning the economy and the markets? Economy has looked strong the last month. Job gains were probably understated in March but these numbers are climbing at a snails pace. A better economy won't cut it until the problems above catch up with it if they haven't already. The world needs a booming economy and that is simply near an impossibility.

With Greece hanging over everyone, it should be an interesting day tomorrow / weekend.

1 comment:

Justin said...

While I'm inclined to agree with you, I'm just not so sure the Germans will let Greece die, if only to try and protect the Euro. I am certain that politically they want nothing to do with bailing out Greece, it's just that if they let greece default, it places the entire Euro under question.

And at that point Germany itself begins to suffer. I have a feeling they're going to let Greece hang in the wind for a while, before stepping in at the last minute with a deal to get them off the hook (probably with some extra conditions).

I think as far as Europe is concerned, they have to put Greece into the 'too big to fail' category, only because if they do let them go the impact will be even more severe.

Even though politically the Germans would love to do nothing, I suspect the EU bankers and regulators are in their ear about a package for Greece.