China, Second US Housing Slump, Greek Contagion

I have to weigh in on Greece… Look at the turmoil caused by Greece and Dubai – two very small countries with little impact on world GDP. This reminds me of the summer of 2007 when two hedge funds were shut down because they couldn’t find liquidity for their underlying investments. The fund closures had a small impact on markets at the time, but many thought little of it. Also, when Bear Stearns was bailed out many thought the credit crisis was over. Unfortunately, it hadn’t even begun.

Concerns over China Economic Policy

Meredith Whitney Sees Second US Housing Slump

‘Grave’ Threats of Greek Contagion

Before an economic dam breaks small ‘controllable’ leaks often appear. The problem is that one controlled leak doesn’t stop the pressure and other leaks appear. Even if Greece is ‘saved’ from itself, what happens when investors flee a country like Spain? As the countries under attack get bigger either the bailouts get bigger (and money printing gets bigger) or you get a default. A sovereign default in this environment could cause a stampede out of everything but the least-risky assets. Bailouts would put funding currencies under extreme pressure. What you get is another Lehman-like situation.

Even if we don’t hear a peep out of Europe for months, don’t get complacent. Time lets people forget, but it doesn’t solve the problem. Bear Stearns was bailed out in March 2008…the markets didn’t go nuclear for another 6 months.

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Also Read:

Update on Trade Errors
BP Oil Spill: Conspiracy, Cost & Calculated Risk
Crisis Goes Global
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