Is Greece Too 'Big' To Fail?

May 24, 2012 01:17 AM

What Traders are Talking About:

* Is Greece too "big" to fail? Global markets and investors remain shaken by happenings in Greece -- a country that's economy ranks 32nd globally in nominal economic size, is 15th out of 27 in terms of economic size in the European Union and has an annual GDP less than that of 14 U.S. states. Really, is Greece such a big deal? Despite Greece's lack of economic clout, it appears the country is too big to fail. After all, there are a lot of banks throughout the Europe (and other areas of the world) who are holding Greek debt -- which they've already had to write down twice -- which would be sent into disarray if Greece exited the euro-zone. The concern is a Greek exit would cause the European (and possibly global) banking system to seize up. In that essence, Greece may be the equivalent to AIG -- too big to fail.

The long and short of it: If European leaders wanted Greece out of the euro-zone, they would have let it happen (or made it happen) long ago. Because they saved Greece in the past leads me to believe they will again -- right as Greece is about to fall off of the economic cliff. But if Greece plays this right, which is appears they may be doing by threatening to leave this time, the rescue "pot" may be sweetened. After all, there are a lot of countries -- Italy, Spain, Portugal and even France... just to name a few of the more prominent ones -- who would like to keep Greece in the headlines and themselves out of them. If Greece leaves the euro-zone it's only a matter of time before someone else grabs front-page headlines for the wrong reasons. Europe is a mess and Greece just happens to be the worst of the litter -- the proverbial whipping boy.

* Poor economic data continues to pour in. China's flash PMI fell to 48.7 in May from April's 49.3 reading amid slumping export orders. That's the seventh consecutive month of contraction in China's manufacturing sector, suggesting the need for further monetary policy easing is increasing. Meanwhile, euro-zone composite (services and manufacturing) flash PMI came in at 45.9 -- the lowest level since 2009. Most concerning out of Europe was that Germany's manufacturing sector contracted at a far greater pace than expected.

The long and short of it: China needs Europe to buy the "things" it makes. With Europe struggling mightily, it's reducing demand for Chinese manufactured goods and weighing the China's economy.

* Open-outcry hours likely to expand. CME Group is expected to file paperwork with the Commodity Futures Trading Commission (CFTC) today asking the commodities regulator to approve expanded open-outcry hours for grain and soy futures at the Chicago Board of Trade. CME Group will reportedly ask CFTC to push the closing time for pit trade back to 2 p.m. CT -- the same as the close of electronic trade. Also, CME Group will seek to have pit trade start at 7:20 a.m. CT on days of USDA grain reports so pit trade is open when the report data is released at 7:30 a.m. CT.

The long and short of it: Market impact if the expanded open-outcry hours are expanded would be very limited, although it would allow local traders to play on a more even playing field. Plus, it would clear up some of the confusion caused this week by the "after-hours" trade on the electronic trading platform.


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