It's the land of the free & the home of the brave.

Let's not forget that the US Gross Domestic Product (GDP) for 2010 was a measured $14.66 trillion. Simplifying what is in fact a very difficult formula, China's figure for comparison was a 'paltry' $5.85 trillion. (In case you're interested, Greece's GDP was $305 billion. The GDP sum total of Portugal, Ireland and Greece (PIG) for 2010 was $740 billion. If you add Spain ($1.4 tn) and Italy (2.1 tn) to that figure it's $4.2 trillion. So what's really got Trichet pressing the 'red panic button'?) Those who know these things will tell you that the size of the world stock market is conservatively estimated at $40 trillion. The size of the global derivatives book is about $800 trillion, give or take...

So when Chairman Benanke announced that US mutual funds / lenders have little or no exposure to Greece and 'neighbours' what he really means is that US banks aren't exposed to derivative instruments linked to those countries. You'll read that European banks have direct exposure in Greece to the tune of $135 billion. Their collective direct exposure in Spain is an exciting $2 trillion.

NOBODY, however, is saying much about the exposure of these institutions to PIGS-linked geared instruments. Watch the share prices of BNP and Socgen for clues.... 

Premature speculation..

PART 1

INT. EUROPE-YESTERDAY

Act 1 Scene 1     (Enter court jester) Greece's Papandreou survives a confidence vote last night. Were there any doubts? [A smattering of applause]

Act 1 Scene 2     (Enter stage 'far-left') EC president Jose Manuel Barroso 'suggests' an immediate 1 billion euro emergency fund for Greece.

Act 1 Scene 3     (Enter his lordship & lady of the Exchequer) Trichet and Merkel parody their relief. Sarkozy nods knowingly.

[Meanwhile unbeknownst to the cast at large; 'Speculator', a dashing and accomplished villain bumps the currency markets for a day. Commodities trade predictably higher and then drift off. (Sniggering laughter).]

EXT. IMF - TODAY

Act 2 Scene 1  (On cue enter village idiot - 'IMF') 'Spain is next...' 

Act 2 Scene 2 (Enter villain - 'Speculator') Sell Spain, I said Sell dammit and then SELL again!!

[Sadly Spanish paper is sold to lavatory levels. Amazingly, Spain can't raise money cost effectively in the capital markets (No? Really?). Sniggering laughter]

Act 2 Scene 3 (Enter second village idiot {yes, it's a village of idiots} - 'Ratings company') Downgrade Spain... We BELIEVE that Spain has insufficient resources to meet its obligations...' 

Act 2 Scene 4 (Enter his lordship & lady of the Exchequer) We must ACT on Spain's behalf....!

[Speculator sniggers quietly......]

Act 3 Scene 1 (Enter all village idiots) 'Portugal is next'

Act 3 Scene 2 (Enter villain) ......................

This is not the end...

There's life but not as we know it..

This is what we know:

1. Greece, Spain, Italy & Portugal are at or on the 'brink' of financial collapse.
2. The Federal Reserve's $600 billion stimulus program is almost at an end.
3. China has raised its interest rates it an effort to curb spending.
4. GDP predictions have been cut from 3.2% to 2.6%

As a result the S&P 500 has erased this year's gains.

What you might not know:

1. The Standard & Poor 500 average price to earnings over the last 20 years is 20.
2. The current average S&P 500 price to (last year's) earnings is 15.
3. Ave. S&P price to book currently is 2.1 or lower than it has traded 90% of the time since the early nineties.
4. Ave. forecast growth for 2011 earnings on the S&P 500 is somewhere between 16 - 18%.

You could say that equity valuations for companies listed on the Standard & Poor's 500 index are cheap... In fact, the valuations are at levels last seen some 25 years ago. 

What's the smart money doing?

Taken at face-value this Morgan Stanley chart (published June 2011) is intriguing, to say the least.

Even though nominal US debt continues to rise, US total debt-to-GDP is deleveraging. ie: it's becoming more sustainable... Conversely, the Eurozone's in a little more trouble. There are, however, signs of a more subtle decline in Europe's debt ratio too.

Nevertheless, it's ABUNDANTLY clear that the smart short-medium money is positioning itself away from the euro...

Is Greenspan really Rafiki*?

Former Federal Reserve chairman, Alan Greenspan, is 'almost certain' that Greece will fail to meet its obligations. The consequences of a Greek default are twofold. Contagion would sweep through global banks, US banks included. The probability of a global double-dip recession would be greatly elevated, obviously. More subtly, he says, the US economic recovery would falter on rising apprehension of a negative long-term outlook. Recently published economic data confirms declining confidence. Is it the end of the world as we know it?

Elsewhere, Germany's Merkel and France's Sarkozy are 'discussing' the prospect of further aid to Greece. It's political posturing, nothing more. Everybody knows that Germany and France can ill afford the failure of the Euro...

Incidentally, the Greeks may choose to default anyway...The longer this EU indecision drags on the higher the risk to other countries. If European and other banks haven't already taken the necessary steps to mitigate exposure risk given that the ENTIRE market suspected, some months ago, that a Greek default was likely, then put your money under your mattress. It's the end of the world as we know it.



*Disney's Rafiki knows what he knows.. He's a wise, mystical, wandering baboon no less vocal even in his dotage.

S&P is a moody fitch!

Who would dispute that rating agencies are a contradiction in proposition? These 'leaders of financial-market intelligence' supposedly provide investors with credit ratings, risk evaluation and fundamental investment research. Investors are therefore 'better informed' when making investment decisions..

The agencies are ostensibly independent, which is a concern, to say the least. It's seemingly a 'run with the hare & hunt with the hounds' business model. It's also patently illogical to accept that ALL three agencies understated the risks associated with the 'complex' instruments that resulted in the financial crisis.

So if it's garbage in - garbage out, should investors really care whether S&P 'downgrades' the debt outlook for Greece, the US, Liechtenstein or Frankenstein?

A drachma for the road, anyone?

In ancient Greece it was said that the truth is heard from angry enemies or from good friends. So who then fits in where in contemporary Greece? Who's on the coveted party invitation list? Who's overstayed their welcome and who's left early?

Paradoxically, the Greek merrymakers are seemingly unconvinced that the party is over......

Trichet is predictably neither friend nor foe.  Like the IMF he covets his status. Social networking is not always friendly. Theirs is a relationship less intimate than friendship. Germany's Weidmann is seemingly p*ssed and wants his gift back. Merkel's smile lingers.... her banker friends long gone once the ouzo ran out.

Besides the Greekshs, the ECB is still toasting the wake because there's nothing more boring than a sanctimonious ex-drunk..