Two Ways: European Banks on Unstable Ground

By Terry Woo  JUN 11, 2009 4:40 PM

Strengthen your portfolio in good times and bad.


European banks are strong enough to withstand the current downturn so long as there is a quick “V-shaped” recovery. But there may be another wave of turmoil if the recession drags on longer than this year. So says the European Central Bank’s financial stability expert Dejan Krusec.

According to the Telegraph, the ECB is closely monitoring 25 euro-area banks that are deemed too big to fail. But the banks are well capitalized enough to cover losses for 2009. That isn’t the problem. “The problem is 2010. We are concerned about the length (of recession),” Krusec said at a Fitch Ratings conference on Eastern Europe.

Recently the International Monetary Fund has called for the ECB to provide urgent action to clean up the banking system and disclose any damage.

Meanwhile, the ECB cut its forecasts for the region to show economic contraction of 4.6% and fall another 0.3% the next year. It doesn’t expect a recovery until mid-2010 precluding any notion of a “v-shaped” recovery.

For more on the economy, check out Professor William Fleckenstein’s Debt Fret: The Price of Printing Money.

From the Bull Pen: Despite the gloomy news, bulls can look to the daily chart of Deutsche Bank (DB). See the stock hold support near $64 as well as a successful test of its 20 DMA ($65.16). A sell stop can be set below that level.

From the Bear Cave: In the US, bears can look to the homies which displayed poor relative strength. The real estate ETF (IYR) is currently sitting on its 20 DMA. One can attempt a downside play if it rallies and fails to break above recent highs. If and when.

Thirsty Thursday! Time for a drink. Have a great night!
No positions in stocks mentioned.

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