What’s going on with the Euro? Early this summer the question was: do banks have a dangerously large exposure to Greece? In June the numbers were very maneagable. Now “all of a sudden” they’re un-maneageable. What’s changed? If anything you would think, European banks have been managing their risk favorably since well before June. They were warned.
This June article from Reuters cites between 40 and 100 Billion but with little consensus.
- “The main conclusion I draw from all this is that no one really knows what the effects of a Greek default would be — but that non-Greek banks are unlikely to be the main vector of any contagion. And while Kash is worried about US banks’ derivatives exposure, I’m pretty sanguine on that front, too.”
- “The eurozone debt crisis is big enough that there’s plenty of blame to go around, and some of it certainly should go to the crisis countries themselves. But it must also be recognized that as soon as those countries adopted the euro, powerful forces were set in motion that made a financial crisis likely, and very possibly unavoidable, no matter what the governments of the peripheral euro countries did. Irresponsible behavior by the periphery countries did not set the stage for the eurozone crisis; the common currency itself did.”
- Although margin debt is coming down it is still historically high and at levels that preceded major selloffs such as September 2008. In fact margin debt is now higher than that of the dot com boom.
- As long as stocks like AAPL continue to set all time highs I believe there is no real fear in the equity markets and thus no forced equity liquidations yet. AAPL may be the best company out there but there is little to no short interest to support selloffs and with everyone all in on the long side and leveraged once selling begins it will be fierce. Remember AAPL is the ATM and when people need to raise cash to meet margin calls they are forced to sell their most liquid position.