Archive for November, 2011
Will Greece Bring Europe To Its’ Knees?
Posted by Jody Eisenman | Filed under Uncategorized
When we left off over the weekend, the stock market had turned in a tremendous October rally. However, I warned people that the plan was short on details, and the Euro bond market yields were showing caution. In the last two trading days, the DJIA has lost close to 600 points, and the S & P dropped 67 more. Two important news events have cratered stock prices. The first event concerned MF Global, the financial firm run by former Goldman Sachs head Jon Corzine. In an effort to boost profits, MF made major bets on the sovereign debt of several European countries. In all too typical Wall Street tradition, these bets were substantially larger than the net capital of the entire firm. Needless to say, when the bonds dropped in value, the firm watched their rating downgraded to junk and investors fleeing for safer havens. Yesterday morning, they filed Chapter 11. To make this story even worse, regulators are investigated the alleged disappearance of hundreds of millions of dollars in investor funds that may have been co-mingled with the assets of the firm. I sincerely hope these allegations are untrue. In any case, MF Global had been in business for over 200 years.
However, the major news, as usual, came from across the pond in Europe. Just days after a bailout package was announced, Greek Prime Minister Papandreou stunned everyone by announcing that this package could only be accepted via a referendum of the voters. There is real doubt how this vote will turn out. Is the average Greek citizen going to vote for an austerity plan that calls for increased taxes and longer working hours? The leaders of France and Germany have called Papandreou in for an emergency meeting. Meanwhile, the news of this supposed bailout blowing up hit the equity markets hard. This drama is being closely watched in Italy, Ireland and Portugal, all countries who could be the next to go. After all, if Greece gets a 50% haircut, what happens to the other weak sisters? Although Merkel has been adamant that this type of bailout will not happen again, I doubt anyone seriously believes her. If Greece eventually defaults, I believe there is a really strong chance this could spread to Italy. If Italy and Greece go, will Portugal and Ireland default as well? Furthermore, what does this mean to France, whose banks own a huge portion of this debt? These are the questions that keep traders, analysts and investors up at night.
