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Posted by on Sep 18, 2011 in Markets, TG Roundup, Worldwide

Four Weeks of Red Alert in Financial Markets

Lightning Storm in Petrified Forest National Park, AZ

I haven’t had much chance to post something about the market action last week. To say the least, even in the face of extremely bearish news, at the outset it looks bizarre to see markets gain for each of the five trading days last week.  Two things that explain this: a) triple witching options expiry; and b) extreme short-covering.

What’s in store for the next four weeks?

Storm clouds are everywhere. The situation in Europe is precarious. Contrary to the joint statement by Merkel, Sarcozy and Greece PM assuring investors that Germany and France are committed to helping Greece, there is speculation that Greece will default on Sept 20. What happens if Greece defaults? Hasn’t it already been priced in? No so fast, my young apprentice! Well, read this (via Zero Hedge).

And then there were more ominous developments in Europe over the weekend.

Today:

  • At pixel time, USD/EUR opened 100pips lower on fears of Greek default this week

  • STRAUSS-KAHN SAYS GREECE CAN’T PAY BACK ITS DEBTS
  • STRAUSS-KAHN SAYS EVERYONE MUST ACCEPT LOSSES ON GREECE
  • From Frankfurter Allgemeine (by way of Reuters): “Germany’s 10 biggest banks need 127 billion euros ($175 billion) of additional capital, German newspaper Frankfurt Allgemeine Sonntagszeitung reported, citing a study by economic research institute DIW. The paper on Sunday cited Dorothea Schaefer, research director for financial markets at DIW, as saying the ratio of banks’ equity capital to balance sheet total needs to rise to at least 5 percent. A source said this month that the International Monetary Fund has estimated European banks overall could face a capital shortfall of 200 billion euros.”

Yesterday:

  • Like me, do you also wonder why the former powerful elite often get chatty after they helped ruin things when they were in power? Some time ago it was Bush, followed by Rumsfield, Cheney and now Former British Prime Minister and former Chancellor of UK Exchequer (equivalent to US’s Fed Chair), Gordon Brown. Yesterday Brow said this:

“In 2008, governments could intervene to sort out the problems of banks. In 2011, banks have problems, but so too do governments.” ….
“We’ve now got the interplay between banks that are not properly capitalized and sovereign debt problems that have arisen partly because we’ve socialized or accepted responsibility for the banks’ liabilities.” ….
The EFSM is “not enough” and “substantially more resources” are required.

  • On Sept 17, a bunch of left-leaning (as the right would call them anti corporation, “anti freedoms” parasites) staged a rather pitiful “occupation of Wall Street.” it accomplished nothing. But, I put the pictures here to attract such readers as President Bush. 🙂

Last Week:

  • Rogue trader at a rogue bank: Those who are financial news savvy are not buying the UBS’ rogue trader lost $2b (updated to $2.3b toady – looks like they dumped another body back with 300 mil loss on his career grave). Matt Taibbi said, “Rogue trader, my ass!” [Audio of  Matt Tiabbi’s take on “USB’s Rogue Trader” story.] There are no rogue traders, only rogue banks/companies.
  • Here are a couple of good graphics which explain the network of debt problems among Euro countries (Source: NY Times):

In and Out of Each Other’s European Wallets

My final comment:

The next four-five weeks can see tumultuous action in financial markets. I believe the much awaited QE3 will be here this week, a short-lived stock rally will follow, which is then followed by a waterfall decline in stocks. Yes, gold could see an ugly sell off!

Red alert and take cover!

3 Comments

  1. Shoot, to me this is looking no less than the Great Depression in slow motion. Damn it! The situation is dire and I think the EU countries are unserestimating the implosion of failing Italy or Greece. It looks like they want to wait until the s*** hits the fan (pardon my language). I heard Giethner was begging them to do something like the stimulus plan that US did in 2008, but looks like they are brushing him aside.

    Meanwhile Fareed Zakaria in his show GPS on CNN, suggested China should bail this whole thing out!

    http://globalpublicsquare.blogs.cnn.com/2011/09/18/zakaria-china-save-europe/

    • Ramana,

      That article by Farid sounds so stupid. He has absolutely no clue about China’s massive overbuilt RE market. China is a big bubble waiting to implode. They too don’t have any money! Whatever they have, it is stuck in US.