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Morning Note: Greece to Drop Out of the Euro?

When is the news so bad, it’s good?

That’s a question currency investors are asking Tuesday as the euro rises against the dollar, despite signs that Greece and Portugal’s sovereign debt issues are far worse than feared.

Yields on 2-yr Greek bonds exploded Tuesday morning to a record high of 22.48% after the European Union revised up Greece’s budget deficit. Eurostat, the EU’s statistics agency said Greece 2010 budget deficit was 10.5% of GDP. Greece’s total government debt at the end of last year was 142.8% of GDP.

The news also caused the price of insuring Greek debt to skyrocket. Credit default swap spreads on five-year Greek notes widened 1,345 basis points Tuesday. That meant the cost of insuring $10 million of Greek debt for five years was now $1,345,000 more expensive. Portugal and Irish debt costs also increased after the EU’s debt statistics.

One would expect the euro to weaken on such news, but it was rising on bets that Greece – and perhaps Portugal – would have little choice but to leave the Euro in order to be able to depreciate their currencies to ease their debt burdens.

“That seems to be the path that we are going through,” said Fast Money’s Brian Kelly of Brian Kelly Capital Management. “It’s positive for the euro.”

Kelly’s prediction that Greece will drop out of the Euro echoed a January call by Dennis Gartman of the Gartman Letter, that the euro was doomed to split into two currencies.

On Tuesday, Gartman said that the Germans were forcing Greece from the Euro by supporting tighter monetary policy. “Germany will be served well by this, and strangely, so too shall Greece, Spain, Portugal et al,” said Gartman in an email. “The Euro, as we know it, is toast.”



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Trader disclosure: On April 26, 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); Seymour owns (BX); Seymour owns (F); Seymour owns (GE); Seymour owns (INTC); Seymour owns (POT); Weiss owns (VZ); Weiss owns (QCOM); Weiss owns (NAV); Weiss owns (TCK); Weiss owns (UUP); Weiss owns (DVN); Weiss owns (COP); Weiss owns (BTU); Weiss owns (TBT); Weiss owns (NIHD); Weiss owns (MSFT); Weiss is short (X); Weiss is short (AKS); Terranova owns (JPM); Terranova owns (XOM); Terranova owns (OXY); Terranova owns (C); Terranova owns (VRTS); Terranova owns (BAX); Terranova owns (BX); Terranova owns (AKAM); Terranova owns (TCK); Terranova owns (HOC); Terranova owns (UPL)’ Terranova owns (V); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman owns (C); Finerman and Finerman's firm own (CMI); Finerman and Finerman's firm own (CVS); Finerman's firm owns (IBM); Finerman's firm owns (JPM) and (JPM) leaps; Finerman owns (JPM); Finerman and Finerman's firm own (MSFT); Finerman's firm owns (TGT); Finerman owns (UNG); Finerman owns (USO); Finerman's firm is short (IWM), (MDY), (SPY); Finerman's firm is long S&P 500 puts; Finerman's firm is long Russell 2000 puts

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
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Virtus Investment Partners Owns More Than 1% Of DOMINO'S PIZZA UK & IRL PLC

Brian Kelly
Accounts Managed by Brian Kelly Capital own (GLD)
Accounts Managed by Brian Kelly Capital own (EBAY)
Accounts Managed by Brian Kelly Capital own (SLV)
Accounts Managed by Brian Kelly Capital own (RDC)
Accounts Managed by Brian Kelly Capital own (SU)
Accounts Managed by Brian Kelly Capital own (LNQ)
Accounts Managed by Brian Kelly Capital own (AGO)
Accounts Managed by Brian Kelly Capital own (NLY)
Accounts Managed by Brian Kelly Capital own euro futures
Accounts Managed by Brian Kelly Capital own gold futures
Accounts Managed by Brian Kelly Capital are short yen
Accounts Managed by Brian Kelly Capital own natural gas futures

For Rich Ilczyszyn
**No Disclosures

For Andy Busch
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For Tony Wible SOT From 4/26/11 FMHR
Janney Montgomery Scott Is A Market Maker In (NFLX)
Janney Montgomery Scott May Seek Investment Banking Compensation From (NFLX) In Next 3 Months

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