Friday, August 26, 2011

European Market Detonation Countdown

It's hard to count down to economic annihilation when the world's central bankers keep pushing back the minute hand on the clock.  Greece has received several bailouts and yet still needs to tap its emergency lifeline because the collateral it pledged to the ECB for loans is worthless.  Bankers see the rapid rise in premiums for credit default swaps on European banks as a warning of banks' imminent insolvency. 

The collapse of European banks and then equities will of course be felt here in America.  Wall Street insiders know what's about to hit.  So does Warren Buffett, which is why he invested in Bank of America's preferred stock (senior to common shareholders in claims on a firm's residual assets) and not its common stock.  The warrants he obtained can be exercised in the future, presumably after a recapitalization wipes out that bank's common equity.  Not that BAC would ever need a recap, of course, as long as the Fed and Treasury stand by ready to funnel it with some TARP 2.0. 

Full disclosure:  No positions in any banks at this time, certainly not BAC.