Why Wall Street still says buy, and you shouldn't

What's the difference between an ostrich and a Wall Street analyst? An ostrich occasionally takes its head out of the sand.

Despite a flurry of signs that the economy is slowing, stock analysts -- nearly every single one -- have remained bullish on stocks. Greece may be hurtling toward default, the U.S. unemployment rate remains high, and house prices are still declining. But the hundreds of pros paid to tell us when to buy and sell stocks have barely touched their call for fast growth in corporate sales and profits for the next several quarters.

"There's a lot of optimism here," says Howard Silverblatt, chief index analyst at Standard & Poor's. "They're predicting the second half of the year will be the best ever for profits. Do you feel that way?"

Of course, no one can predict with certainty whether the economy will slow to a crawl or even fall into another recession. But what's startling is the near unanimity among these prognosticators. They believe that the economy won't get much worse and say we'd be foolish to sell stocks despite a near-doubling in prices in the past two years.

Among the 9,015 analyst recommendations on S&P 500 stocks available today, only 300 are to sell, or 3.3 percent, according to data provider FactSet. That's the same proportion from a month earlier when the economy was considered to be in better shape. All else being equal, you want to sell if you think profit growth could slow.

Analysts work for banks, brokerages and research firms. To form their opinions on stocks, they pore over the financials of companies, visit their offices and factories and grill their executives. Then they churn out voluminous reports backing those opinions. Those are widely read -- even by professional investors who like to poke fun at their relentless bullishness.

Some analyst predictions that might make you scratch your head:

-- Profits will leap in the second quarter. For April through June, analysts expect that companies in the S&P 500 index will post $23.90 in operating profits per share, four pennies less than their estimate at the end of May, according to an S&P survey. If that happens, companies will earn 15 percent more than in last year's second quarter.

-- Record profits next quarter. For the three months ending Sept. 30, S&P says analysts see operating profits hitting $25.09 per share. That would be a higher than any quarter yet, beating results from the second quarter of 2007. Back then the economy was growing twice as fast and the unemployment rate was half what it is today.

-- A blockbuster year, followed by another. For all four quarters of 2011, analysts estimate that S&P 500 profits will hit a record $97.86 per share, surpassing by $10 the previous record for any year, set in 2006. Then, they insist, profits will jump another 14 percent to $111.82 per share in 2012.

S&P's Silverblatt thinks many analysts will eventually lower their estimates. He notes that most prefer to wait for corporate executives to hint that they should cut estimates before doing it. But many companies appear to be waiting until they announce second quarter earnings to guide estimates down. That won't be until at least mid-July.

Nicholas Colas, chief market strategist at broker ConvergEx Group, says the upcoming reporting season will be the most important since the Great Recession ended eight quarters ago. If companies suggest that estimates are too high, earnings revisions will fly, he believes.

For the average investor, that could mean danger ahead. Stocks already have fallen nearly 7 percent since their April peak. That's not far from the 10 percent mark that signals a correction. Suddenly gloomy analysts could push it the rest of the way.

One stock to watch: Apple Inc. The i-everything maker is expected to report in mid-July. The stock could fall if the economy continues to slow and consumers cut spending on its products. Apple products are generally considered recession-proof. Still, after a stock climb of 22 percent in the past year, you'd think there'd be a few doubters about its ability to rise further. Not exactly. Among the 45 analysts covering the company, only one is suggesting you sell, according to FactSet. If Apple's revenue or profits come in low, not only would that make analysts look flatfooted, it could spread jitters among investors. That, in turn, could pull other stocks down.

The uniform optimism among analysts might be laughable if it didn't matter so much. When ordinary investors hear bullish TV pundits talking about how stocks are "reasonably valued," those investors are being swayed by analysts even if they've never read their reports. Pundits who talk this way are often referring to the so-called price-earnings ratio, a figure they get from analyst estimates of a company's earnings. That P/E ratio for the S&P 500 currently stands at 12.9 times estimated operating earnings for the coming year -- cheap compared with the long-term value of 15 or 16 times.

The problem is, that 12.9 ratio could be wrong. If earnings come in lower than expected, the P/E ratio for the S&P 500 will shoot up. Stocks would no longer seem "reasonably valued" and might fall sharply. This scenario has happened before.

In June 2007, near the end of a five-year bull market, stocks were trading at 16 times estimated operating earnings for the next 12 months. But the estimates turned out to be too high as the economy slowed and then dropped into recession. In fact, stocks were trading at 22 times the operating earnings that companies delivered over those 12 months. As those lower earnings came in, stocks fell 15 percent over the next year while the analysts played catch-up.

Now analysts want you to believe that nearly every stock should be bought.

After the dot-com bust, politicians and prosecutors thought the reason analysts got it wrong was sinister. They noted that analysts working for the research arms of a bank are reluctant to criticize a company that the banks are courting as a client for other parts of their business. But the real cause may be more difficult to root out because it's so human: self-delusion.

"You're married to an industry, and you want to feel that what you're following is special -- that it can buck the trend," says ConvergEx strategist Colas, who was an auto industry analyst for nine years and admits he fell into that trap. "You want to feel the companies are run by smart people and the fundamentals are good."

To be fair, analysts have been right in their optimism in the recovery so far. Investors who followed their advice and bought stocks last summer amid somber economic news have been rewarded. This fits a pattern, according to a recent McKinsey & Co. report that otherwise lambasted analysts for overestimating earnings growth by nearly double, on average. During economic recoveries when recession-depressed stocks are most likely to rise, analysts look like geniuses. If you're counting, that's four times over the past 30 years.

It's the rest of the time investors should worry about.

Technically Precious with Merv

Either speculators are getting used to the daily Middle East and EU (primarily Greece) upheavals or have taken tranquilizers as the gold trading in recent days has not been all that energetic. The momentum of the recent move is deteriorating and that implies that gold might just take another dip. How far and how long is anyone’s guess.

GOLD

LONG TERM

Although the momentum of the gold trading action has subsided considerably still all the technical indicators that I follow remain in their positive zones and trends. Gold remains well above its positive sloping long term moving average line. The long term momentum indicator, although not all that exuberant, is still comfortably inside its positive zone. It is, however, very slightly below its negative sloping trigger line. That could change with just another up day in the market. As for the volume indicator, it remains the most positive of indicators and has entered new all time high territory. It remains above its positive sloping trigger line. Putting those indicators together the long term rating remains BULLISH.

INTERMEDIATE TERM

Over the past few months gold has reacted downwards a few times and each time it touched, or just about touched, its positive sloping intermediate term moving average line and turned around back to the up side. That may be what it is doing once more. One difference this time versus the previous times is that this time the reaction towards the moving average line did not start from a new high in the price of gold. One would almost envision a deterioration in speculator’s interest in gold and do not seem willing, enthusiastically, to push the price of gold higher, at least not at this time. Still, the indicators remain positive and one takes their directions from the prevailing trend (with one eye open to any warnings). Gold remains above its positive sloping intermediate term moving average line while the intermediate term momentum indicator remains in its positive zone. One small sign of warning is the fact that the momentum indicator was below its trigger line for a few days and although it did move above the trigger on Friday the trigger line itself remains in a downward slope. The volume indicator continues on its upward path and above its intermediate term positive sloping trigger line. For now the intermediate term rating remains BULLISH with the short term moving average confirming by remaining above the intermediate term average.

HEAD AND SHOULDER PATTERN (H&S)

Technician’s sometimes grasp at straws trying to see patterns in the charts they follow. Let’s grasp at one straw here. Do you see that head and shoulder pattern (H&S)? I have my own criteria for when I determine a H&S pattern, and I emphasize that this is my own criteria and not found in any texts that I know off. For a H&S pattern to be valid it must be based upon a bullish up trend. I have seen some analysts claim H&S patterns that developed from a bear trend, but not here. The basic criteria that I look for is that the distance from the start of the

bull trend to the top of the head must be AT LEAST twice the distance as from the top of the head straight down to the neckline. Now, most of the time the neckline is horizontal or very close to it. Here, we have a very steep upward sloping neckline and one might be very leery to call this a H&S pattern BUT it does meet my basic criteria so what the heck, let’s go for it and call this a H&S pattern. I do look for one more indicator to give me the confidence that the H&S pattern is valid. I look for the momentum indicator to give me a negative divergence at the head. Unfortunately, we do not have that validation here. The momentum indicator is just slightly higher at the head location versus its left shoulder. That does not mean that the pattern is not valid but it does make it a little less likely to be completed by a break below the neckline. However, we do have a very strong support level for the momentum and a break below this support (at around the 45% mark) would provide a confirmation of a trend reversal. We should know very soon as the price of gold is not that much above the neckline and could break below any day, or move sharply higher.

Oh yes, there is one more indicator that many text books look at to determine a H&S pattern, that is the volume action. Most like to see lower volume action at the head versus at the left shoulder and like to see the volume pick up after the break on the right. I have found volume action to be too often a misleading indicator. It’s great when it increases SHARPLY on a break or at critical points but is often misleading when it decreases. So I look at volume only for a confirmation once the pattern has been broken to give me more confidence of the validity of the break, if the volume increases sharply. Still, go with the trend. If you are wrong the trend will quickly tell you that by reversing.

A final point, a H&S pattern is only a valid H&S pattern AFTER a right shoulder neckline break. Anytime before that (such as the present) it is only aPOTENTIAL H&S.

SHORT TERM

Short term the market has been going up and down but very recently the up side has shown signs of exhaustion. We seem to be once more in one of those upward moves. Gold has just moved above its short term moving average line and the line has just turned to the up side. The short term momentum indicator has bounced back into the positive zone after only one day in the negative. It has also crossed above its trigger line with the trigger finally turning upward. On a daily basis the volume activity remains relatively mild and still below its 15 day average. Once more the short term rating has turned towards the BULLISH side. However, the very short term moving average line, although turned to the up side, has not yet crossed above the short term line for confirmation of this bull.

As for the immediate direction of least resistance, I’ll go with the up side as that is the direction of the latest action and the Stochastic Oscillator is in an aggressive upward slope.

SILVER

As the Table of Technical Information and Ratings suggests, Silver is still strong versus the other precious metal Indices but gold has taken over the top performance spot for the short and intermediate term. The recent weakness in silver is starting to show in the ratings and performance. Silver is still number 1 from the long term perspective, but for how long?

The recent month long rally in silver has been even more subdued than that of gold. The long term rating for silver remains BULLISH with silver above its positive long term moving average line and the long term momentum remaining in its positive zone.

The intermediate term has weakened considerably over the past month or more. Silver remains below its negative sloping moving average line and the intermediate term momentum indicator remains in its negative zone although just very slightly in the negative. The intermediate term rating remains BEARISH at this time but could change with only a couple of positive days of action. The short term moving average line confirms this bear.

On the short term silver is bouncing up and down similar to gold. At the present time silver remains just below its short term negative sloping moving average line while the momentum indicator remains in its negative zone but just slightly above its negative sloping trigger line. Still, the short term rating remains BEARISH with the very short term moving average line confirming.

PRECIOUS METAL STOCKS

It now looks like all of the major North American Gold and Silver Indices as well as the Merv’s Indices have broken below their recent support levels and continue to head towards lower levels. In addition, the long term momentum indicators for the Major North American Indices have also moved into their negative zones while the Merv’s Indices momentum indicators are still mixed, some now negative while others still positive. This may differ slightly from the Table information as the Table information is based upon slightly different indicators than used for my normal analysis and may be a little slower to turn around.

The PHLX Gold/Silver Sector Index is typical of the major North American Indices. Next week I expect to show my Merv’s Gold & Silver 160 Index for comparison. The 160 Index shows the average performance of the 160 component stocks, including the top 100 stocks by market value.

The Merv’s Spec-Silver Index was the only Index showing a positive move over the past week. Looking over the component stock list this positive performance was not the result of a single super performance but did result from several component stocks with double digit performances. Possibly the speculative silver stocks have been so battered over the past few weeks that “bottom fishers” just all jumped in at the same time hoping to catch the bottom. That’s a long shot gamble. Nothing wrong with such strategy as long as one understands it is a long shot gamble. If you keep trying to pick the bottom as the stock declines, sooner or later you will pick the bottom. Whether you can profit from such pick will, of course, depend upon you having any capital left by that time.

The Merv’s Penny Arcade Index moved lower with the rest of the Indices but at a slower pace. Maybe its decline is coming to an end and better results may not be far ahead.

Merv’s Precious Metals Indices Table

Well, that’s it for this week. Comments are always welcome and should be addressed to mervburak@gmail.com.

By Merv Burak, CMT

Why Germany must exit the euro

Imagine you’re in charge of Europe. Not, I grant you, the opportunity of a lifetime, but let’s narrow down the job description to one specific question. The only way you can save the single currency is to eject one country from the eurozone. So, who is it to be?

You might be tempted this weekend to say Greece, for understandable reasons. Not only is it facing almost certain default, it has been a constant thorn in the side of the euro – spending too much, saving too little, and displaying the kind of corporate and statistical honesty you could only hope to match by placing Bernie Madoff in charge of FIFA.

But Greece is not the word. Stricken though it is, lancing that particular boil won’t help. Greece’s issues have always been a manifestation of a far deeper problem with the currency, one that policymakers still seem unable to confront. The eurozone has been pulling itself apart for years; removing Greece will not change that.

However there is another eurozone member that sticks out like a sore thumb. It has run its economy just as, if not even more, recklessly than the Mediterranean brothers, has single-handedly destabilised the euro area for the best part of a decade and is one of the biggest road-blocks to its ultimate recovery. That country is Germany.

This might sound counter-intuitive. Germany, after all, has an enormous current account surplus; it honed its productivity and competitiveness over the past decade; where Greece borrowed it saved, where Spain splurged it cut, where Ireland inflated it deflated. But that is precisely the problem. Were Keynes around today he would have identified the issue instantly: in any monetary system, nursing a mammoth current account surplus can be just as destabilising as a deficit.

It’s easy to blame Greece and its incontinent cousins for their over-spending – and certainly Athens is guilty of fiddling its fiscal figures and failing to collect taxes. But its twin deficits are also a consequence of the low interest rates which were largely determined by the way Germany ran its economy.

The euro project was supposed to bring productivity across the Continent to similar levels. You would expect the same bang for your euro whether you were spending it in Athens or Berlin. A single currency area cannot hope to survive unless this law of economic gravity is obeyed –unless what it is really is a transfer union, where the rich constantly subsidise their poorer neighbours with infusions of cash.

There is little prospect of a Greek productivity miracle in time for it to pay back its loans. In fact, the emergency loans being hammered out this weekend will only serve to exert more pressure on Greece to pay back debt rather than investing in its economy. And while the EU/IMF may well be able to afford a Greek bail-out, or for that matter an Irish and Portuguese bail-out, there is no way they can do the same for Spain – even if the German voters allowed it, which looks increasingly unlikely.

Greece would be better out of the eurozone than in – but then so would Portugal, Ireland, Spain and perhaps a few others. They would convert their old debt into the new drachma, escudo, punt etc, which would upset investors, since it amounts to a default. But it would at least free them from the debt deflation they would be consigned to under any euro bail-out. Their currencies will become representative of the uncompetitive economies they really are.

But a series of exits would be incomparably messy: each new currency devaluation would have the potential to stir up a Lehman’s-style financial crisis of its own. Far better instead to get rid of the one real outlier.

Without Germany, the euro would obviously be a significantly weaker currency (particularly if Germany was joined by the Netherlands). But it would no longer be torn apart by the unhealthy dynamics that have haunted it in its first decade.

German policymakers should take a pragmatic look at the situation. On the one hand the only way to save the euro (without forcing out the Mediterraneans) is to make it a transfer union. They would have to absorb enormous long-term costs to support their weaker siblings – either in terms of inflation or simple cash transfers. It would be a slow-motion long-term bail-out of even greater scale than the recent emergency infusions. And even this does not rule out the short-term prospect of default.

On the other hand, abandoning the euro would involve a nasty financial hit as German banks’ euro investments suddenly crater in real terms. The deutschemark 2.0 would appreciate, which would severely undermine the foundation of the

20th-century German economy – exports. The question is which of these would be more expensive. Both involve a default of sorts, though the deutschemark/dirty-euro version accomplishes that default through devaluation rather than a slow-cook bail-out.

In terms of financial chaos – unknown unknowns – escape would surely be the cleaner option. It would also address that fundamental problem of imbalances within the single currency rather than papering over the cracks. And while exporters will complain, the fact is that Germany has benefited from an unnaturally low exchange rate over the past decade which has lent it unfair advantage in the export market, and only served to inflate that current account surplus further.

The sticking point is politics, but even there the debate is shifting. German politicians are loath to be portrayed as the destroyers of the European project, but this could easily be outweighed by the public reaction when Germans realise what they will have to pony up to keep the ship afloat (of which the emergency loans are merely a foretaste). The French would be dismayed at the idea – after all the raison d’etre of the euro project was to feed off the German economic “miracle”. And if Germany leaves, does France stay or go?

Right now, such calculations are still dismissed as outlandish fringe notions in Europe, but then so was the idea that the IMF would have to bail out the euro project. Eventually the policymakers will catch up with reality.

Gerald Celente - The Ponzi scheme is collapsing

Gerald Celente : ....the collapse is underway the system is failing in front of us , there is no way of fixing this anymore , Gerald Celente predicted before that when the bailout bubble burst they will take you to war and we see that happening in front of our eyes it is happening now as Obama has started at least two wars in Libya and in Yemen with a possible new war in Syria , The Ponzi scheme is over says trends master Gerald Celente the game is running out the digital money not worth the paper it is not printed on is collapsing the economy worldwide , the ballot box is rigged , what we have is a global financial meltdown , the money scheme is over the Ponzi scheme is collapsing , the unemployment rate is 22 percent according to John Williams of shadow government statistics , I am not telling the people what to believe I am not pushing a agenda says Gerald Celente , the solution is to bring the troops home stop the foreign aid to foreign countries and take care of the Americans first bring all the money home says Gerald Celente , we need to have a direct democracy we should vote like Switzerland , we can vote online

Why Soybean Price Could Double From Here

Risk Hacker writes: While for the past 12 months, corn and wheat prices have nearly doubled with corn price rising 88% by percent and wheat price by 95%, soybean price has been lagging the performance. However several key factors suggest that risk of soybean price is still dramatically skewed upwards.

Societe General’s Dylan Grice made a neat comparison in the 1970s and what will happen to grain in the future. In 1972, Soviets secretly bought grain on the global markets to make up for a shortfall. That led to the“Great Grain Robbery” of 1972. In 1972, Russia’s wheat crop failed. Russia had to dip into the global grain markets to meet demand. Russia’s purchases sent grain prices soaring around the world.

China now faces similar scenarios. With government artificially suppressing edible oil prices by pouring reserves, farmers are expected to plant 20% fewer soybean acres this year. China's overall soybean area, on a harvested basis, was pegged at 8.5m hectares, 200,000 hectares lower than the current USDA estimate and the lowest since 1999. With soybean/corn ratio as unprecedented low level, more farmers tend to switch soybean to higher value crops.

Not only the tight supply balance resembles 1972, technical parallel is equally compelling as well. I overlaid the current 2011 soybean contracts on 1972 and get these.

I remember how Paul Tudor Jones predicted the 1987 crash by looking at a 1920s chart (the famous document ‘trader’). If one believes markets self-resemble, these two charts may give us a clue what’s going to happen. And from a supply and demand side perspective, this makes sense as well. Both the government of China and 1972 Soviet Union interfere with the market, trying to temporarily suppress the grain prices. For a while, they succeeded, led to near-term market prices trending downwards, but later backfire is also expected. Grain prices tend to suffer seasonal weakness in summer, however, with the decades low stock-to-use ratio, any type of supply disruption could trigger the dramatically upward.

The Sotheby's Indicator: Getting Closer To Predicting A Crash: BID

Great intuitive chart here – lifted from the chart compendium put together by Damian Cleusix of Global Tactical Asset Allocation (see here for complete deck):

According to the notes – a signal is given when:

1) The RSI reaches an overbought level (bottom pane – been there and now heading south)

2) The MACD closes below the Green signal line (middle pane – almost there)

3) The monthly close of the stock price is below its 12 month moving average (almost there – it’ll have to rally just under 10% from here to make it back above the MA by the end of June)

Ways to Invest as Faith in Fiat Money Withers

How to profit from the coming Greek default ... Five trades to make before the euro implodes ... You don't exactly need a crystal ball to know what the biggest event in the financial markets of the next 12 months is going to be: Greece defaulting on its debts. This week Standard & Poor's cut its rating on the country to CCC, the lowest of any nation in the world. Only last week we learned that Greek industrial production was down 11% year-on-year. Unemployment has risen 40% over the past year, and now stands above 16% nationally. – Matthew Lynn, Marketwatch

Dominant Social Theme: A silver lining to every disaster.

Free-Market Analysis: This is a good article from Marketwatch's Matthew Lynn in the sense that it gives you something besides gloom about the euro and EU. Matthew Lynn suggests there will be numerous investment opportunities if the euro crumbles because of the Greek (and PIGS) budgetary crisis.

We like it because he doesn't hedge. He is quite sure that Greece is going to default and even take the euro and maybe the EU with it. A year after the IMF "rescue," Greece is back where it started or even worse, he points out, heading toward a depression.

The debt is too high and the deficit is too deep. Greece will default and every one knows it! (Even though no one will say it.) The question is simply one of time and amount. With this in mind, he provides us with five trades based on the unraveling of the euro that he believes are positive.

The first trade is German bunds; buy them and sell the DAX stock index. The deutsche mark that will arise from the ruins of the euro will be a dominant currency. This means German bonds will rise in value as the currency appreciates; at the same, Lynn believes Germany's exports may not have such a good time of it, at least not at first. Eventually German manufacturers will once more figure out how to do business with a strong currency as they did throughout much of the 20th century. But the learning curve will offer pain. Why participate? Sit on the sidelines.

The second trade is the Swiss franc. Sell it. Investors are buying the franc right now, and even the Israel shekel, desperate for a safe haven. What IS safe right now? The dollar? The yuan? The Japanese yen? Most countries are struggling these days one way or another, but if the euro evaporates, several currencies will likely emerge that might definitively claim safe-haven status. The deutsche mark, Lynn writes, will certainly draw money away from the Swiss franc, which will then depreciate.

The third trade is the Belgium index. Another sell. This is an obvious one for Lynn. Brussels, a tiny little pimple of a country, has been in the right place at the right time. The euro and the EU have puffed it up, and today somehow it presides over a super-state the size of America. Maybe not for long. Brussels is chock full of lobbyists, politicians and diplomats, all buying expensive meals and renting luxurious flats. That will change if the euro withers and the EU collapses. The economy shall surely deflate and many Belgium companies along with the stock index.

The fourth trading tip is European travel companies. Buy them. A problem with the strong euro is that it has virtually eviscerated the travel business to Southern Europe – one of the reasons the PIGS are having so much trouble economically. But once the pesky euro goes away, the normal balance of Europe will reassert itself. Northern Europeans will continue to enrich themselves and then, in the summer, travel south to Spain, Italy or Greece to relax. The local travel industry will re-establish itself. Even the Greeks will prosper.

The fifth trading tip is the US dollar. Buy. (Imagine that!) He believes the PIGS debt, dumped by German and French banks, has ended up in US hands. Thus, the US economy will take a hit; still, the dollar as a currency will appreciate. There is no alternative. The dollar, he writes, will be the recipient of a second wind and spend at least another decade as the world's reserve currency.

These are logical trading strategies, clearly laid out. Our only disagreement might be with the initial assumption. We're not convinced the euro is going away, nor the EU, at least not any time soon. We would like to think so, but we'll settle for a hampered euro and a humbled EU that cannot do so much damage to people's civil liberties as its handlers would prefer.

The initial idea of the EU as a free trading zone might be seen as a good one. The current monstrosity is a vicious mess that aspires to be an empire, though it's crumbling now. This is one trend worth encouraging.

Sure, Greece may drop out of the euro, even Spain and Portugal. The eurozone might simply default toward the North – Germany and the Scandinavian countries. If there is to be a euro, the northern industrial engine will run on it. They can form a formidable currency block if they wish to.

Lynn's remarks about selling the Swiss Franc seem feasible to us, if we accept the euro lingers on in the North. If so, Brussels won't entirely shrivel away. Too bad.

We are not sure we agree about buying the dollar. The US is in terrible trouble financially; we might be tempted to make it an honorary PIG. The US has been under attack by the power elite for over a century and we have trouble believing that attack will diminish any time soon. They regard the libertarian and republican sentiments of the US with enimnity; they are trying to crush the culture and the economy and these attacks will no doubt continue.

Even a shrunken EU and euro would be an enormous victory and a defeat for the powers-that-be who are trying to use the EU as a stepping stone to a kind of one world order. The most poisonous ambitions of the Anglosphere elite would be lanced. Defeat is a terrific prophylactic.

There would be knock off effects as well. The currency unions that the Western elites have been so assiduously encouraged in South America, Asia, Africa and even the Middle East would likely become less attractive given the euro's implosion. All to the good.

Concusion: There will surely be numerous trades to contemplate as the euro situation evolves. Who knows, they may even hold it all together. We hope not. We would much rather bet against this evolving authoritarian empire than for it.

UK banks abandon eurozone over Greek default fears

UK banks have pulled billions of pounds of funding from the eurozone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.

Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.

One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the eurozone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a

seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

While the funding position of UK banks is far stronger now than it was back in 2008, the banking systems of several other major European countries, including Spain, Germany and Italy, are showing increasing signs of weakness.

Analysts at UBS have warned that eurozone banks are “particularly exposed” having not done enough since the crisis to cut their reliance on the wholesale funding markets and remain acutely sensitive to the withdrawal of liquidity from the inter-bank market.

Simon Adamson, a banks analyst at CreditSights, said it was clear many eurozone banks had been having trouble funding themselves for several months.

“Clearly there are some banks that are finding it difficult to access markets. I think this is a long term sign of the way the markets are going,” he said.

Spanish banks have become the main focus of market concerns with the latest European Central Bank (ECB) figures showing that Spanish banks have been forced to increase their use of ECB lending facilities and borrowed a total of €58bn (£51bn) in May, up from €44bn in April.

“We have been amazed at the ability of Spanish banks to find ways to fund themselves, but it is clear they are running out of options,” said one senior analyst at a major investment bank.

US Economic Calendar For The Week

TIME (ET)	REPORT	PERIOD	ACTUAL	FORECAST	PREVIOUS
MONDAY, JUNE 20
	None scheduled
TUESDAY, JUNE 21
10 am	Existing home sales	May		4.80 mln	5.05 mln
WEDNESDAY, JUNE 22
10 am	FHFA home prices	April		--	-0.3%
12:30 pm	FOMC announcement			0%-0.25%	0%-0.25%
2:15 pm	Bernanke press conference
THURSDAY, JUNE 23
8:30 am	Jobless claims	6/18		415,000	414,000
8:30 am	Chicago Fed national index	May		--	-0.45
10 am	New home sales	May		310,000	323,000
FRIDAY, JUNE 24
8:30 am	GDP revision	1Q		2.0%	1.8%
8:30 am	Durable goods orders	May		1.6%	-3.6%
8:30 am	Nondefense, non-aircraft capital equipment orders	May		--	-2.3%