The Credit Crisis Financial Stocks Short Journal

Quote from Daal:

Rogoff and Reinhardt found that banking crisis are usually followed by sovereign debt crisis. The world had the worst banking crises since the 30's, so this sovereign debt crisis is only beginning in all likelyhood(specially given that deficits are still running quite high globally).

This Greece situation had already quite a bit of impact on the US stock market, if the government debt crisis is only starting, more uncertainty should come down the pipe and stocks will fall as a response. I'm expecting the S&P500 to trade at a 8 handle as these issues continue to dominate the headlines, not to mention the V shaped recovery that is unlikely to come and banking issues that still exist(Also the end of QE).

Even if the US economy does well, stocks might still fall as a result, back in 98 with the economy booming the LTCM and Russia situation lead to a sharp decline in equities(getting GS to postpone its IPO), markets hate uncertainty and the start of global sovereign debt crisis should provide plenty of it

Anyone heavly long stocks here should consider locking profits, in particular the high beta EM that are up 100% since the lows
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Daal, when you look at stockmarket performance in 2009 (albeit local currency) the correlation between a weak stockmarket and government solvency concerns is less clear than your comment might suggest.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=187177&highlight=currency

A glitch or is there something more to the story?

Cheers.
 
Quote from Debaser82:

Daal, when you look at stockmarket performance in 2009 (albeit local currency) the correlation between a weak stockmarket and government solvency concerns is less clear than your comment might suggest.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=187177&highlight=currency

A glitch or is there something more to the story?

Cheers.
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Thats true, its a matter of what the market is paying attention to. Greece was in a debt trouble most of 2009 but the market only started to get worried about it when the agencies downgraded them(dec). Dubai only went into trouble when they announced they might not make payments,etc

The thing is, it might take a while for the agencies to act. Spain is still rated AAA by some, the market might though ignore the agencies and act by itself and CDS could move first. But you can notice the market is waking up more and more to sovereign debt problems, and stocks dont usually like that
 
Many people predicted the recession and the financial crisis but it surprised to the downside of even them, that crisis built the seeds to a sovereign debt crisis, so why are some now expecting a soft landing to that?
If anything it might surprise to the downside again, specially compared to market expectations(that is usually too rosy).

The IMF does change things, its like TARP is already in place to prevent failures but Rogoff says in some cases the IMF cant do much as there are structural issues, which means losses to bondholders and uncertainty.

Plus multiple equilibria plays a role as well, if people think a country is in trouble they will soon be in one as their will pay ever higher interest rates and have problems in their debt auctions. So confidence is important, the latest rounds of 'this is just a rumor, we wont bailout greece' 'no bailouts' just adds fuel to the fire, politicians seem quite inclined to do that, they wait till the last moment to surrender
 
I dont believe that is a big deal, the Fed already shutdown just most of the emergency lending programs, the small spread of discount to fed funds was a done in a emergency basis so its appropriate that is taken out. Yet the front end as usual tanks heavly at any hint of hawkishness
 
Of course, this is in direct contradiction to what Bullard said yesterday. What the Beard is talking about is my nightmare scenario in which rates rise at the short end for technical reasons - having nothing to do w/the strength of the economy, but wiping out the value of the GE calls anyway.

As for stocks, they may go up or they may go down. Its hard to see how a techinical increase of 50 or 100 basis points in the funds rate will have any effect on stocks. I would expect the investment community to argue to the fact that the Fed allows the short end to rise is good news because it means they have little concern about a double dip or continued deflation. S&P is up nearly 1% since the Beard's statement while the short end is getting hammered.
 
The Fed Senior Officer Loan Survey was flatish showing no change(which means the tight standards are still there), bad news, that is unless you work at Morgan Stanley macro team, where they think its good because 2nd derivative credit standard declines had coincided with higher capital markets credit issuance in the past(when the bubble was at full speed ahead). Well, there is some bad news for Greenlaw and his buddies

http://www.bloomberg.com/apps/news?pid=20601087&sid=akE15WN3aLOE&pos=6

I'm expecting they will look back at their Q3 FF hike call in disbelief as how they could be so off. They already seem to be in the process of doubting their views by saying 'Policy Uncertainty Clouds the Outlook' and claiming the government might make their forecasts wrong
 
Barclays Capital says US big banks are exposed to the tune of $130b to Greece debt. Now just wait as Goldman says they bought Greece CDS and their actual exposure to Greece is $0
 
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