Italian shares fell 4 percent on strong volume to hit its lowest level in more than a year on fears the euro area's third-largest economy, which has one of the largest public debts in the world, could be next to succumb to the region's debt crisis.
If Italy gets into trouble it's game over for the Euro -- but the real reason why wasn't mentioned until deeper into the story.
Bank share losses dragged France's CAC-40 down 2.7 percent to post its biggest intra-day loss since June 2010 on strong volumes.
"Friday was a purge on the Italian banks. Today is a purge on those who are most exposed to Italy, that's to say the French (banks)," said a Paris-based analyst.
Why do I have a gut feeling that Christine Lagarde's appointment to head the IMF signals that French banks are in so much trouble that any bailout would require the IMF to help the ECB?
I mentioned this over a week ago:
"I hope Sarkozy got what he wanted with Christine Lagarde as the new head of the IMF. She's been helpful is buying time for the French banks so far. She may buy a lot more. The question is, will it matter. I for one feel that it won't. Banks are broke because they've never taken their losses and their so-called "reserves" are mere fractions of the total (and as-yet unbooked) losses."
This is pure speculation, but somehow I think it could be France that brings about the end of the Euro.
As for our markets, I'm all out of the SPY 135 puts from last Thursday and did not end up hedging them for more than a half hour or so on Friday. It would have been a nice trade, but it was even nicer to cut out early.
Today I'm waiting to see if the S&P settles in at the 38% retracement from the most recent highs. So far it looks like it is. If current levels hold, there could be a set up for a nice reversal targeting 1370. So maybe the S&P won't be worrying about French banks -- nor will I. I'll just be listening to what the market tells me.
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