Another day of the "de-risking" trade. Anyone else getting tired of the "Europe has a plan!", "Europe has no plan" volatility. Lets cut straight to the point - there is no possible plan! Brushing aside for the moment the constitutional crisis enveloping the continent, what we have is a downward spiraling ecosystem. Debt piled on when times were good (and a haughty wink-wink, nod-nod by the EU regarding debt levels) turned to lead as the system slowed. In order to tame the beast, austerity measures are bantered about which are growth killers (not to mention they get in the way of the mountain of entitlements the populace is used to) and result in higher relative debt/GDP ratios for the foreseeable future. The populace chokes, governments collapse and the sovereign crisis continues. Then comes the good part - the crisis spreads (probably a poor choice of words, I will admit) to the banking sector (poor choice because it has always been in the banking sector as well) which compounds the problem, further retards growth and ushers in a "new 2008" crisis. Good stuff, no? Yeah, just wait until we address the capital shenanigans the Eurobanks like to play with risk, risk models and risk management (recall what AIGFP was used for - removing capital hogs from Eurobank balance sheets).
In any event, enough of my discourse, what the hell did we see out there today:
Equities:
After grinding back up from an out of the gate drop, Fitch come out with a report on US banks and their exposure to Europe. Some snippets:
Contagion Effects Potentially Large: U.S. banks could be greatly affected if contagion continues to spread beyond the stressed European markets (Greece, Ireland, Italy, Portugal, and Spain). Exposures to large European countries and banks are sizable. The ongoing economic and market effects are additional concerns. The crisis has been negatively affecting European credit profiles and has resulted in numerous rating actions recently.
Net exposure. Gotta love it. Ummmm, what happens when exchanges are voluntary and 50% of your holding is wiped out without triggering your insurance policy.... Yup, net is gross. Honestly, is this news?
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