Eurozone debt is the 500lb gorilla not the Fed this time

As financial markets roller-coaster down again to the downside it is important to try to get a global overview. US investors are fixated on the Fed and its statements and actions, while the real 500lb gorilla in the front seat is actually the eurozone debt crisis, something the US has very little influence over.

Yesterday rumors in the market had France’s triple-A credit rating under imminent threat. That appears untrue now, although as with the best rumors the truth is very obviously closer to the rumor than admitted.

French debts

For if the US is shorn of its triple-A rating then France with its bigger future funding liabilities is also an accident waiting to happen. The swirling rumors sent shares in the second largest French bank, Societe Generale down 15 per cent.

But this is just an appetizer, an amuse bouche, for what lies ahead. There is nothing in the pipeline to suggest an imminent and comprehensive resolution of the eurozone debt problem; and what is coming up has all the hallmarks of a historic cock-up in the making.

The eurozone leaders will meet at their leisure this autumn to extend debt support structures. How that will be agreed and whether it will be enough or timely enough to underwrite all the debts of the eurozone is just not certain.

Remember in 2008 it was the decision not to bailout Lehman that triggered the global financial crisis. This autumn it could be the same all over again in the eurozone.

In any event the eurozone financial crisis will hardly be over. Texan newsletter guru John Mauldin has pointed out that within the next two years some 80 per cent of eurozone banks will become insolvent without massive restructuring, or we would add nationalized.

Shorting banks

Shorting the eurozone banks looks an excellent trade, but then it will be the same for the US banks too. The US is hardly isolated from Europe these days. The cross links and contagion will be enormous as it was in 2008 for Europe when Lehman went down.

Is it any wonder either that gold is up $100 in three days and now looks to be going parabolic? These are interesting times but for holders of equities the time to sell out is now. Going short in stocks never made more sense.

The ArabianMoney newsletter next month will pick up this theme of how to prosper from investments during these troubled times and present actionable investment ideas that we do not discuss on this website (subscribe here).