German/French Bank Exposure to Greece

Bloomberg exposes the behind the scenes story of the Eurozone economy in "PIGS Exposure Explains ‘Shotgun Greek Wedding’: Chart of Day." Eyeballing the chart shows total exposure of $2.1 trillion to the PIGS. The exposure to Greece for German banks is $119 billion, and for all European banks is $253 billion.

In other words, the $73 billion the Greek government needs this year to refinance bonds is chump change.

At first glance, it seems obvious that there will be a bailout. In fact, with this kind of exposure, I'm shocked that there hasn't been one yet. But then again, it may be easier for France to bail out French banks after a Greek default than to bail out Greece.

So this throws a wrench in the game theory that we use to understand this. Germany and France especially are much more exposed to losses from Greece and the PIGS.

Overall, this means the Euro and its banking sector are weaker than they look. Short-term, however, this smells like a bailout waiting to happen, and I will look to sell at a good technical price.

Action: Hold EUO. Consider closing at a 10% premium to 50-day moving average (currently around $21.20).