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Monday Morning Quarterback: The Second-Chance Saloon


Will the US roadmap allow Europe to avoid ruin?

Julius Caesar once said "Beware the Ides of March" and world leaders are paying heed to his warning.

Deutsche Bank (DB) CEO Josef Ackermann met with Greek Prime Minister George Papandreou on Friday for what Bloomberg described as a "normal business trip." I would venture to guess that the discussion was anything but normal.

Old School Minyans will recall that we quoted Mr. Ackermann as the crisis took shape, when "working groups" and "super conduits" were first introduced to the mainstream lexicon. In October 2007, he said it was "premature to make a firm judgment…when all details are yet known or fully announced" and to succeed in restoring confidence, a plan must provide "transparency" to the prices of financial assets."

Fast-forward to the modern day Greek tragedy, where European Disunion is a legitimate risk and the Five-Step Guide to Contagion is a familiar script.

Mainstay Europe has more than a passing curiosity with how the second iteration of the financial crisis unfolds. German and French banks carry a combined $119 billion in exposure to Greek borrowers alone and more than $900 billion to Greece and other countries in the euro-zone's vulnerable periphery of Portugal, Ireland and Spain, as reported in the WSJ.

European Union Commissioner Olli Rehn, speaking in Athens today after meeting with Greek Finance Minister George "Papa G" Papaconstantinou, said he is "asking the Greek government to announce new (austerity) measures in the coming days," a request Papa G indicated they will comply with. This, as we know, is an attempt to pave the way to a successful 10-year bond auction by the troubled Aegean issuer.

Let's assume for a moment that the bond auction is successful, that European leaders opt for a Bear Stearns "rescue" over a Lehman Brothers "lesson."

Following the stateside script written in 2008 -- one we discussed and traded in real-time -- the initial euphoria led to a 54-handle rally in the S&P and 13% gains over the next three months. We all know what happened next -- the perceived containment morphed to contagion -- but at the time, the conventional wisdom assumed that the worst was over.

Past performance is no guarantee of future results, we know, and the fact that we have a transcript in hand may actually work to Boo's advantage. Still, as we strive to see both sides of every trade, we must allow for the possibility that the four-month sideways slither is a bullish basing rather than a bearish churn.

S&P 1100-1120 remains layered resistance but it should be noted that the entire trading universe is using the same levels. That increases the likelihood of the dreaded Pop & Drop should Hoofy bull through this zone, a scenario that is starting to percolate as the most likely in my crowded keppe.

One step at a time as we together find our way.

Random Thoughts

  • To Mr. Ackermann's 2008 comment that to succeed in restoring confidence, a plan must provide "transparency to the prices of financial assets," I would offer that we're no closer now than we were then.

  • If you missed Friday's "The Wild Wild West of CDS," you may wanna take a sniff. Something tells me that 2010 might be the year we see a massive regulatory overhaul for these opaque financial products.

  • It wouldn't be a Monday if there weren't M&A! Prudential Plc (PUK), Britain's biggest insurer, bought AIG's (AIG) Asian life insurance unit for $35.5 billion in cash and stock, giving them access to more than 20 million customers in the region.

  • Snaps to the Syracuse Orange for showing up on Saturday night and our first #1 National Ranking since my college days. The top spot means little at the beginning of March but you have to enjoy the little moments in life.

  • The Goldman Sachs (GS) board of directors rejected the demands from shareholders regarding pay practices? Oh, that'll play well in the press.

  • How will the prohibition of home foreclosure without HAMP review impact the counter-parties of that risk? Consistent with the two sides of every trade theory, someone will be on the hook for speculation gone bad.

  • "We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two." Warren Buffett in the Berkshire Hathaway (BRK-A) shareholder letter.

  • "Speaking as an ex-lawyer: Greece can "declare" whatever it wants but no one will care. If a fund in London buys a CDS from a bank in New York, and the CDS contract specifies it is governed by UK or New York or Delaware law–they would be insane to specify Greek law -- the Greek government has as much power to nullify the CDS as it does to nullify gravity." Minyan Robert

  • This is one of the best advertisements I've seen in a long time; it's very Minyanesque.

  • I'm in Chattanooga Tennessee, Jed, for a financial literacy conference on Thursday and Friday. As strange things tend to happen while I'm gone, I just wanted to put it out there.

Position in S&P

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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