I think this is the result of the implied government guarantee that most investors believe is far stronger in Europe.
However, now that the global financial system is so strongly intertwined I don't think the world financial system could handle a default resulting in the liquidation of any bank on the list.
So does that mean all these banks' default insurance should be trading at government rates?
Beggars, Sovereign Funds and Sharks Written By: Elaine Chan 2008-01-17 12:09:47 An old Chinese tale goes that a scholar traveling to a foreign country has not eaten for days, and is dying of hunger. He comes across a gang in the boondocks, and one of the guys feeds him a bowl of rice. Then he finds out that they are bandits.
"I'd rather die than eat the food of a thief," he says as he vomits and passes out.
Don't be Fooled by Recent Rally Written By: David Neubert 2007-11-14 10:50:51 The last two days have all the markings of a bear market short-covering rally. The sectors that have the most negativity have rallied the most: Retail and Financials. If this were a real transition from a negative selling market to a rally, the sectors that have been leading would continue to lead: Technology and Materials.
So what is happening? People who short stocks are much more skittish than those who go long; they are also more disciplined traders. That means that when a trade starts going against them they get out in a hurry (remember, good traders know that the odds are stacked in their favor and survivors win. I always told my traders, "Survivors win so get out if you don't know why a trade is going against you. Don't be right, be a survivor.") That is why bear markets are full of break neck rallies in lagging sectors. That is exaclty what has been happening the last two days.
"Sent you a message on your Facebook acct...you adding to Merrill Lynch (MER - $42.97)? Can't get a read on the big pullback..do the institutional traders know something we dont?"
I'm not adding to MER and I'm actually out of it for a while. My stop loss rule got me out just after I wrote about Thain. (Sadly, I did not apply that same stop loss rule to some other stocks recently).
The institutional traders are selling everything financial. There is nothing special happening with MER that isn't happening with Lehman (LEH - $42.03 ), Goldman (GS - $160.92), Citigroup (C - 20.16), Morgan Stanley (MS - $40.62) and the rest. And if there is I'm not sure what it is. Unless you have really done a lot of research and figured out something special about specific financial companies, I'd rather play the financials using the financials iShare (XLF -23.66) at this point. I'd rather not take the specific risk of any one company at this point. If you believe financials are cheap you might as well buy them all. The fund provides diversification and thus is much less risky. I don't know if any of these firms are going under but I'm sure they are all not. And when they bounce back up they will NEARLY all bounce together.
