Cross Posted on the Economic Maverick
Could this be the week it all starts to really fall apart? Maybe!
The biggest single thing to watch out for? A potential "Lehman Moment" in Europe. From "Tyler Durden" (whoeverhe/they are?) of ZeroHedge
In what will be the event of the week in my view, Germany's Constitutional Court is set to rule on the legality of the seemingly endless bailout pledges made by Merkel. I have no idea what the result will be, but if they rule against the bailouts, that would be Europe's version of a Lehman moment
Talk of a European "Lehman moment" has been ripe for months, but if the German court rules against Merkel, this one truly could be it, not just because of the gravity of it by itself, but also in combination with other news issues already weighing and other developments that could hit. They include:
- Downgrade of Italanian Debt
- Widening of spreads for all Euro-Periphery debt
- Continued funding problems of French banks, with the potential to spread quickly to other Europeans and American Banks, especially if points 1 and 2 above occur
- Terrible US jobs numbers from last week
- Continued rising stress in the European inter-bank, astheir slow-run on themselves increases rapidly
Good synopsis by PIMCO's El-Erianon the potential turbulence ahead:
- Banks stocks led the debacle on European bourses Monday, with drops of some 5 to 12 percent in a single day.
- With so many European banks holding so much European government debt on their balance sheets, the dramatic sell-off in their shares reflects mounting pressures in the sovereign bond markets.
- Several records have been set today, from a 92-percent annualized yield on very short-dated (six-month) Greek bonds to the risk spreads on Italian and Spanish CDS (credit default swaps).
- But an important element of the story is elsewhere. It has to do with the ECB's ability to influence the yield on the Italian 10-year bond.
- For a while, outright ECB purchases of Italian bonds on the secondary market had succeeded in keeping that yield at or below the 5-percent level for the "old" Italian 10-year benchmark bond. In recent days, however, the yield has migrated upwards, and today it touched some 5.5 percent.
Or as we said about two weeks ago,
Welcome to Financial Crisis 2.0
May we live in interesting times