The EU Is In Trouble, But No One Is Paying Attention

My friend Yra Harris is an astute observer of markets.  He has survived the trading game for decades now. He blogs over at Notes From the Underground.  Recently, he is one of the only bloggers around talking about a European bank implosion.

Yra writes,

The AQR is Europe’s second attempt to establish a credible stress test for the balance sheets of European banks. In order to dress up their balance sheets ,European lenders are loading up on European sovereign debt because SOVEREIGN DEBT HAS A RISK WEIGHTING OF ZERO under the terms of Basel III. So to borrow money from the ECB at zero and buy a basket of Spanish, Portuguese, Italian and Greek debt, and earn the difference without increasing your reserve … well, that’s truly free money. THIS IS WHY EUROPEAN BONDS ARE AT RECORD LOWS. Mario promised he would protect the euro system and its sovereigns resulting in the markets having no FEAR of nation-state solvency. The ECB and Draghi have created a positive feedback loop for European bonds as banks take LTRO money and continue their feast on sovereign debt. But I BELIEVE depositors have started moving money out of European financial institutions and into U.S. assets from Treasuries to S&Ps for the European banking system is not paying for the potential risk.

What is the US move if European credit jumps the shark?  What happens as Putin invades Ukraine, and starts to put more pressure on former Iron Curtain countries?

The stock market defies gravity right now.  Somehow, it feels like 1999 to me.  Back then, they said companies consistently losing money was okay.  It was a new paradigm.   Today, there are economists out there saying this low growth low wage situation is the new economy.  Human history would go against that.