Euro-Banks Worry Fed and Investors

The reprieve from Euro-news was short-lived. News
that the Fed has been meeting with the executives at U.S. branches of
European banks is raising the fear level of investors this morning.

It’s being reported that one European bank has recently borrowed $500
billion from the European Central Bank. And that’s the first time such
lending has taken place since February.

Needless to say, at least some European banks are having liquidity
problems. The recent statements from European banks like France’s Societe
Generale that they are fine are being called into question. Rightfully
so.

The Rise of the Machines (MSFT, NOG)

For the second time in a week, we had a “margin
call” day. That’s what I’ve started to call those days where the market
sells off steadily all day, because it’s as if the market itself received a
margin call, and has to sell stock relentlessly, regardless of
fundamentals.

Now, since I mentioned fundamentals, that’s the place to begin our
discussion of what’s happened to the stock market lately – and what we
should be doing about it.

As I wrote yesterday, analysts and strategists alike are on record saying
they do
not want to lower earnings forecasts for stocks
. They typically cite
the fact that companies have steadily grown earnings, even when economic
data weakens, like last summer, when economic data was so weak, the Fed
began the bond buying program known as QE2.

Finding Opportunity

During the depths of the financial crisis, Warren Buffett plunked down $5 billion dollars on Goldman Sachs (NYSE:GS). It’s reported that this investment has returned nearly $4 billion as some sense of normality has returned to Goldman’s valuation.   

 

Also during the financial crisis, Warren Buffett sold put options on the S&P 500. A put option is a contract that allows an investor to buy or sell an asset at a certain price on or before a specific date. So when Buffett sold put options on the S&P 500, he agreed that if the S&P 500 falls below a certain level, he will pay out.   

 

Reports are that Berkshire Hathaway could be dinged for as much as $63 billion if these put option contracts go against Buffett. But it’s also reported that Buffett took in $9 billion when he sold the puts.