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Europe Package Coming?


Parsad
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I suspect we are getting pretty close to seeing some sort of huge European bailout package/fund being approved.  The $440B package was delayed till at least October due to voting, but I think we are going to see something sooner than expected. 

 

We aren't going outside of North America (no need at our size), but European investors can probably find many things that were priced as cheap as U.S. stocks in late 2008 and early 2009.  I would not be surprised to see Fairfax and Berkshire announce further large investments in Europe as well.  Cheers! 

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The German Bund yield declines to a record low as Euorpean stocks slide and Italian bonds tumble. Ten-year bund yields fell 16 basis points to 1.85% as of 5:15 p.m. in London, after earlier declining to an all- time low 1.844%. I guess what yield's we get tomorrow in the US.

 

Credit-default swaps according to CMA soared on

Greece  182 basis points to 2,532

Italy jumped 44 basis points to a record 446.5

Portugal climbed 46 to 1,026

Spain rose 28 to 420,

Germany increased 5 to 84

France was up 14.5 at an all-time high of 186.

 

http://www.bloomberg.com/news/2011-09-05/german-bund-yield-falls-to-record-low-as-stock-slide-spurs-safety-demand.html

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We aren't going outside of North America (no need at our size), but European investors can probably find many things that were priced as cheap as U.S. stocks in late 2008 and early 2009.  I would not be surprised to see Fairfax and Berkshire announce further large investments in Europe as well.  Cheers!

 

European stocks in general, cheap, yes, like Munich Re, currently almost at their 2008 and 2009 level's again,  but seriously would i touch Deutsche Bank. They seem cheap relative to book value,...currently about half, but seriously I never could figure out their leveraged balance sheet. About 38 times leveraged - equity vs assets. Huh  :o  DB always looks to me as leveraged as hell compared with the current major US banks like WFC, BAC & JPM, which are leveraged around 10x. American banks are the brave ones, European the naughty ones, balance sheet wise.

 

http://finance.yahoo.com/q/bs?s=DB+Balance+Sheet&annual

 

No wonder Josef Ackermann has memories of 2008, thus European governments are in a sort of prisoner's dilemma. But good times to buy stocks.

 

Ackermann Says Market Reminiscent of 2008

http://www.bloomberg.com/news/2011-09-05/european-banks-under-assault-in-markets-that-remind-ackermann-of-late-2008.html

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I think we are not close to a Euro deal I am not sure a deal is possible with out leadership and that seems to be sorely lacking at this stage. In the US a bunch of guys sat around a boardroom table and congress passed Tarp and the bailouts shortly there after. In Europe this kind of cohesive dramatic action seems required but impossible to pull off. They still have not decided conclusively what they are going to do with Greece which is now is looking more and more like Europes Lehman moment.Who knows what political clout the holders of the CDS on soveirgn debt but they will be pushing for the just say no to Greece.

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I suspect we are getting pretty close to seeing some sort of huge European bailout package/fund being approved.  The $440B package was delayed till at least October due to voting, but I think we are going to see something sooner than expected. 

 

We aren't going outside of North America (no need at our size), but European investors can probably find many things that were priced as cheap as U.S. stocks in late 2008 and early 2009.  I would not be surprised to see Fairfax and Berkshire announce further large investments in Europe as well.  Cheers!

 

I think they will need to find Paulson's bazooka to make it work. The 440b may be too little.

 

The European bailout is also not directly comparable to TARP and we should not assume the results will be the same. With TARP, the banks being bailed out had balance sheet problems but not P&L problems (once the BS problems were cured). In other words, they could earn their way out and pay back TARP.

 

in Europe, the parties being bailed out are governments who have chronic P&L problems (budget deficits) which, given current economic conditions, are paradoxically difficult to cure. Budget restraints to close the deficit gaps actually work to increase the deficits in the short run as the economy contracts. It is a much harder problem to solve because governments cannot play the margin game that banks can. Political resistance to cutbacks make life even more difficult.

 

 

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I think the only viable solution is a break-up if the Euro becasue we are dealing with a solvency issue not a liquidity one (where TARP worked).  Does anyone have any ideas how this would impact the US and stocks?  Maybe the new Euro would become really strong with continued selling of the $?

 

Packer

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Guest longinvestor

I'm skeptical of any bailout working getting agreement amongst some 40 nations. The absolute worst thing that EU is facing is a economic contraction in the US (or god forbid in China soon). That will be like driving a nail into the coffin of the export dependent, larger EU economies. That won't be pretty at all. Like someone else here said, the bailouts will likely never be paid back.

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