Saturday, June 5, 2010

Bill Laggner: Markets Vulnerable

Bill Laggner guest posts for KWN:

"The break in the Euro today coincides with the break in the S&P 500 and the support levels of the most recent months have been 1040 to 1050. Those levels now look vulnerable. As the stimulus wears off and the current administration does not have an encore performance, those levels may just give way finally.

The Euro dropped to multiyear lows as Hungary joined Greece in the global economic sovereign debt crisis. Like the Greeks, Hungary and other Eastern/Central European countries cope with economic contraction while debt servicing on both a private and public level remain insurmountable. Societe Generale (SocGen) rumors started overnight when several sources unveiled derivative impairment charges possibly linked to Hungary economic news which shouldn’t surprise anyone since SocGen has over $28 billion in Eastern/Central European debt exposure. To put things in perspective SocGens Eastern European exposure is roughly 60% of equity!

Other French banks remained quiet today as Trichet continues to monetize approximately $2-3 billion per day in Greek sovereign essentially bailing out his countryman’s finance houses while the Germans ask “where is our bailout”. According to latest ’09 filings some of the largest German banks are levered anywhere between 70-80X so a Greek bailout only partially removes some of the toxic waste from their respective balance sheets. No word on how much potential liability lies in the Eastern bloc but sources tell us the situation is dire indeed.

The ECB has elected to enter the QE road. In two weeks the central bank of the United States will meet and looking across the pond and seeing their european counterparts monetizing to the tune of $1 trillion dollars will Bernanke opt into more quantitative easing to stop asset prices from breaching their most recent lows?"

Bill Laggner

Bearing Fund