Biggest News of the Day

In my opinion the biggest news of the day is not that S&P broke the November lows, nor is that GDP loss on Q4 (that seemed forever ago) nearly doubled from previous estimates, but rather that momentum seems to be building for a Eastern European aide package.

It is my contention that Europe is about a year behind the U.S. when it comes to the financial meltdown. They are with us step for step when it comes to the economic downturn but because of the accounting the banks are about a year behind in recognizing the rot on their balance sheets. In this cycle you can look at Eastern Europe as the subprime in the U.S. Many Western European banks lent to Eastern Europe customers who were only credit worthy as long as currencies remained stable and Eastern Europe continued growing.

I think it is likely that at some point we see a Bear Stearns moment in Europe. Where there is some major intervention, eveyone breaths a sigh of relief, a large rally ensues, and then comes a Lehman moment months later and investors realize the cancer has spread and the previous intervention was just putting a finger in a bursting dam. However, instead of banks, we are talking about countries.

http://www.bloomberg.com/apps/news?pid=20601110&sid=ar5xvGTDq3ZA

Eastern European currencies strengthened against the euro as world governments prepared aid packages to prevent an economic crisis in the region from spreading.

and

“It shows international institutions and the European Union are really contemplating what they need to do to help,” Simon Quijano-Evans, a Vienna-based economist at Credit Agricole Cheuvreux, said in an interview. “We are talking about the future of the European Union as a whole. It’s not about East and West anymore.”

and

Gyurcsany will present his plan at a March 1 EU summit in Brussels, he said in an interview in Budapest yesterday. The “European Stabilization and Integration Program” would include short-term financing for governments, coordinated restructuring for private debt, the recapitalization of banks and liquidity for companies, Gyurcsany said.