On Monday, chatter on the floor had everything to do with whether stability was coming to Europe.
Financials rallied sharply on news that the two largest banks in Greece announced plans for a merger.
Investors took developments as a sign that overseas banks were aggressively working to shore up their balance sheets, which have been battered by a severe debt crisis as well as recession.
”And to the extent developments removes risk, it should be positive for banks exposed to the risk,” says trader Brian Kelly. In other words, it could assuage concerns about counter-party risk – a large cause for concern in the market.
However, strategic investor Dennis Gartman isn’t buying it.
”I don’t take (the merger) as being much of anything,” he counters. “To get excited about these developments and think they are the end of the problems in Greece is naive at best.”
Gartman tells us that Monday’s gains in bank stocks were nothing more than a short squeeze. "It's the end of the month and everyone is short so everyone ran for cover on the news," he says.
Gartman expects gains to be short-lived - and he doesn’t think Europe is out of the woods by any circumstance. In fact he thinks the next big round of troubles could surface as soon as September 7th.
On that date, ”a high court ruling comes out of Germany deciding whether its permissible for German money to support Greek banks and Greek debt,” Gartman explains. If public sentiment is any indication, “I suspect (they) won’t be in favor of it.”
Largely Gartman says politics will prevail.
German Chancellor Angela Merkel has elections coming up, he says, and circumstances are against her. “She’s got to do something to get the German people behind her, and Germans don’t want to do down the road any farther.”
In fact, Gartman remains convinced that Greece will be kicked out of the EU –something he first told us back in November. He says it’s not a question of if but rather when.
Trader Zach Karabell isn’t so certain. He thinks the Germans are all too well aware of the consequence of kicking Greece out of the EU. “If Greece leaves the EU, it will create a run on Ireland, Portugal and other (at risk) nations. I don’t think Greece can leave without a complete unraveling of the system.”
Karabell thinks Germany will do everything to avoid it. “That’s a no win scenario,” he says.
But according to Gartman, it’s unavoidable. And if and when that happens Gartman believes it will generate a house of cards. “When Greece goes, Italy goes, Portugal goes, Ireland goes and Span goes.”
”No question, this is an ugly circumstance,” Gartman says.
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Trader disclosure: On August 29, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymours own (BAC); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Weiss Owns (AAPL); Weiss Owns (AGU); Weiss Owns (JPM); Weiss Owns (QCOM); Weiss Owns (VZ); Weiss Owns (DE); Weiss Owns (NIHD); Weiss Owns (COP); Weiss Owns (DVN); Weiss Owns (TWM); Weiss Owns (SDS ); Karabell own (AAPL); Karabell own (BAC); Karabell own (GS); Karabell own (GOOG); Karabell own (JPM); Nations is long (SPY)
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