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Blackrock, Credit Suisse and Goldman Sachs line-up to push US stocks higher missing the Cypriot Black Swan

Posted on 21 March 2013 with no comments from readers

Cyprus is a pesky $10 billion molehill in the view of Blackrock CEO Larry Fink who sees another 20 per cent upside for US stocks. Those never-wrong experts from Credit Suisse and Goldman Sachs are speaking with the same voice.

Stocks of course will keep rising until they start going down. Betting on momentum is a bright thing to do unless something happens to change the game. What if Fink is wrong about Cyprus?

Black Swan?

Black Swan events are not only unexpect but unexpectedly disastrous. What looks like a $10 billion hole in some bank balance sheet a long way away can very quickly mushroom into a serious global financial problem, especially in the context of the delicate financial balance in the eurozone, the world’s largest financial bloc as large as China and the US put together.

Detonate a mine in the eurozone and the ripples reach far and wide. Bankruptcy and those that follow a Cypriot debt implosion would disturb the status quo in Europe, and lead to a fresh flight of capital from the periphery to the core nations. Greece could once again get into trouble. Spanish debt costs could soar again. The euro would weaken and the dollar gain, not a positive for US stocks.

Is Wall Street wrong to be so complacent? It made this mistake in 2008 with Lehman Brothers whose bankruptcy the consensus felt could be handled by the banking system. We all know what happened next.

Big hole

What we don’t know right now is the true extent of the losses that would be suffered and by whom if Cyprus goes belly up. The bill for Lehman was way higher than anybody thought possible and it may be Cyprus with its secretive banking system is far further under water.

You don’t know the unknowns until this is tested and the world of international finance may live to rue the day it pulled the plug on Cyprus. Then the giants of Wall Street will be left running for cover with their clients seriously out of pocket and they enjoy a profitable period of volatility.

Of course that assumes that they are not following their own trading advice in their proprietary activities, and they may be foolish enough to do just that!

Posted on 21 March 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Investment Gurus, US Dollar, US Stocks

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