Greek default looks like a near certainty at this point. Greece has said it has only a few weeks of cash left. Its 2-year notes are yielding 57%. And Germany is reportedly examining how Greek default will affect its banks.
German banks held around $23 billion in Greek debt at the end of 2010. One would think that German banks have had plenty of time to offset its exposure. Still, there’s no way to know how default from Greece will affect banks until it happens.
Personally, I suspect that default won’t be the negative catalyst that investors expect. At least the uncertainty will be removed. And as we’ve seen in countries like Iceland, default isn’t a death knell.
The bigger issue for Europe is Italy and Spain. These two are much bigger than Greece. True, they don’t carry Greece’s debt levels, but if Europe let’s Greece default, speculation that other countries will follow will arise.
Bank of America (NYSE:BAC) strategists say there could be 21% downside. At first, I thought they were talking about Bank of America stock, but they were actually talking about the S&P 500.
Now, these strategists are technical analysts, which means they use price and volume activity to forecast future prices. I can imagine that the charts may look pretty bearish for the S&P 500. But I remain skeptical that there is significant downside for stock prices, absent some kind of shock that hurts economic activity.
Citigroup (NYSE:C) has taken an axe to its 3Q earnings estimates for Goldman Sachs (NYSE:GS). Estimates were slashed from $2.70 a share to $0.10. Yes, you read that right.
If you’re wondering how estimates can be so far off, you’re not alone. These analysts get paid to know what’s going on in other businesses. And to miss estimates by such an incredibly wide margin, well, it seems more than just incompetence.
Citi analysts have lowered estimates for several bank stocks, including JP Morgan (NYSEJPM), Bank of America and Goldman. But only Goldman suffered such a sharp revision. Perhaps the issues are more company-specific.
No bank stock has traded well over the past 2 months. But Goldman is usually a stellar performer. Watch for someone to get fired at Goldman. If CEO Blankfein steps down, that will be a bullish catalyst for the stock.
McGraw-Hill (NYSE:MHP) is splitting into two separate companies. You may recall this is the parent company to Standard & Poor’s ratings agency. The reason for this move should be obvious. I bet they started planning the break-up moments after S&P carried through in its threat to downgrade the U.S.
There have been more +4% swings in the stock market in the last 10 years than there were in the previous 40 years. That’s an interesting statistic, and I bet there are any number of reasons why. We could blame, the de-regulation of banks, globalization, oil prices, even the Internet.
With the Internet came an immediacy of information that we are still learning to handle. Investors can now get, and act on, information in the blink of an eye. To me, that means there will be more action like buying and selling), and less thinking.
The de-regulation of banks has led us into the volatile world of leverage and derivatives. And the forces of globalization have tied the world’s countries together in ways that we don’t fully understand.
Yes, we live in interesting times.
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