Well that didn’t take long. Just a day after it
was reported that Greece
will benefit from a debt restructuring that will
require current bond-holders to take a financial hit, Ireland‘s finance ministry is
demanding a similar restructuring for its bonds.
Of course, this is what happens when you open the
door to restructuring. In a union, all rules must apply equally. You just
can’t give preferential treatment to one country and not expect others to
demand the same treatment. The European Central Bank should have known
this. And its failure to see this one coming is making the situation even
The ECB needs to get this situation under control
quickly. And that’s probably going to mean caving in to restructuring
demands from Ireland, and any other EU country that’s overwhelmed by debt.
The impact in U.S. banks is not insignificant.
U.S. bank exposure to Greek debt is said to be $41 billion, and mostly in
the form of credit-default swaps. (Bank of America
was kind enough to detail its $441 million exposure.)
alone has the most exposure, at $65
*****The stock market appears to be pricing in not
only Greek restructuring, but Ireland and Spain as well. And that has
implications for the U.S. dollar. China, for instance, has been a
willing buyer of European bonds as it diversifies its assets. That has
helped support the euro against the U.S. dollar.
But if the EU screws up and China ends its support, the euro
will crumble and the dollar will rally. Daily Profit readers are well
aware of the intimate relationship between the U.S. dollar, the stock
market and commodity prices.
******Have you heard that the S&P 500 is
targeting support at the 1,250 level? We’ve heard TradeMaster Daily Stock
Cimpl discuss this support level. Now, it
seem like the entire investment world is watching that level, and
expecting stocks to bounce there.
There’s enough belief that this level will hold to
make me nervous. One thing the stock market doesn’t like is a consensus.
Anytime the vast majority believes something will happen, they are
usually disappointed. After all, you can only fool all of the people some
of the time.
*****The housing market showed some more signs of
life. After yesterday’s jump in new mortgage loan applications (fueled
mostly by refis), new building permits and new housing starts showed
improvement. And the foreclosure rate continued its decline.
New jobless claims also appear to be stabilizing
above 400,000. That’s clearly not good, but at least the number isn’t
rising. The bigger problem is that hiring has slowed just as fast as
jobless claims have risen.
The economy remains essentially stagnant.
*****As always, feel free to write me anytime: