Moody’s downgrades French banks as eurozone crisis intensifies
Posted on 15 September 2011 with 5 comments from readers
Eurozone politicians are becoming increasingly irrelevant as a full blown banking crisis threatens to spiral out of control in the region. Moody’s downgraded three top French banks yesterday while three-year Greek debt yields hit almost 200 per cent making these bonds untradable.
The banking system of Europs is in crisis, something not seen since the global financial crisis three years ago. But at this point in time financial markets have not yet priced in the potential for contagion which ought to be obvious.
Greece a sideshow
If the crisis was really just about Greece then there would be a containable problem. The French banks wailed yesterday about their limited exposure to Greek debt but it is the others – Portgual, Ireland, Italy and Spain – that are the real worry.
None of the banking stress tests allow for this kind of widespread systemic breakdown. It is a financial armageddon that is just not supposed to ever happen, just like black swans were believed not to exist until the discovery of Australia where all the swans are black.
Right now financial markets are verring between not wanting to believe the obvious and inevitable – like a Greek default – and thinking the the end of the world is almost upon us. That makes for high volatility and swings back and forth albeit at a low base.
Going down
How much longer can this continue? Something has to give way. Somewhere a small boy will pull his finger out of the dike and let the flood waters cascade.
Appropriately investors should stay liquid or go short in these markets. There will come a point at which markets become oversold and there are some deals of a lifetime for those with the cash to spend.
But those who hop in too early will get dragged down with the rest. Nobody rings a bell at the bottom of a market but you can certainly hear the warning bells sounding as a big ship goes down.
5 Comments posted by readers:
Greece in isolation is, as stated above, manageable … BUT, again (!), the hidden Armageddon is the unknown amount of Greek CDS issued.
When Greece defaults, those chickens come home to roost.
What will the impact be on those euro-banks which ‘passed’ both the past & recent ’stress tests’ …… not to mention the collateral damage done to economies as affected governments are then forced to shore up their balance sheets?
Nicely written piece Ed. It captures the mood of the street which i think i exist on, however shorting this market could also lead to folly, when who can say how crazy those at the controls really are; perhaps deranged is a better word. The market surged today on news that banks are lending to banks. Who owns the central banks? These people have nothing left but to breathe liquidity into an already dead animal. The derivatives have wiped them out. The Asians know it. The only question in my mind is, just how does it collapse? And when? I think its a process. First they throw the citizens overboard, layer by layer, and then each other. Finally we have a large war. Somewhere along the line gold goes to $10,000.
Here we go – ‘delusion’ was the word i was looking for..
Rick Rule (from kingworldnews):
“People in the mainstream markets are looking for hope and seize on any evidence that a crisis is postponed for 72 hours as hope. I think the strength that you are seeing in global equity markets and the weakness that you are seeing in precious metals markets is really a consequence of a very, very strange form of mass delusion.”
Rickards says ‘We will muddle though the next few months’, mentions surviving into next year.’ and > ‘ Germany has a Plan B. Too bad about those Greek bonds.. we’re saving the German banking system.’
So there’s the fulcrum of the game.
(Rickards) ‘The bizarre love triangle, Yuan, Euro, USD’
Gold is the one thing every currency can depreciate against. Ergo gold standard. Currency war over. Won.
Gold $10,000
There’s a good chance markets are not going to crash this fall, rather they are going to roar. It seems it’s the only thing left for them to do at central station, pump in as much liquidity in as possible, and hope. Market mania will prevail. Gold may correct before it heads north but who wants to bet on that, just buy. Its purely a safety move now, greed aside.