Born Aegean

"Everything I found out, I want to forget."
--Jason Bourne (The Bourne Identity)

Dominos are starting to tumble in Europe as Greece bail out sputters and sovereign bond ratings get cut. When the EU formed in the late 90s, I wondered how so many diverse countries and cultures would be able to manage a common monetary and fiscal policy--particularly given the socialist structure of so many EU members (as Margaret Thatcher once noted so eloquently, the problem with socialism is that you eventually run out of other people's money).

When things get tough and member deficits run deep, as they are now, we should get a pretty good stress test of the solidarity of this configuration.

The immediate question is one of contagion. We know that Euro banks are in worse shape than US counterparts (which is saying something). Banks especially in Europe also have considerable sovereign bond exposure. I'm also wondering who is short all those credit default swaps that rocketing in value.

The smartest guys I know suspect that many are underestimating the risks here.

Stocks here had their worst day in a while altho admittedly they were due for a breather. Two month uptrend is now clearly broken. Interestingly, gold was strong in the face of a stronger USD.

Next coupla days should prove interesting.

position in SPX, gold