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'I'm Running the Lightest Portfolio of My Life': Trader

"I'm running the lightest portfolio of my life, and I'm delighted about it," one trader told me this morning, sheepishly admitting he is 70 percent in cash. With a pile of puts.

That is one reason we get these wild swings: Guys are forced back into the market, either to cover or just to make sure they don't fall behind on days when the market is up.

Greece will likely get the next 8 billion euro ($11 billion) tranche of aid, so day of reckoning is put off into October for them. Of course, everyone knows this is kicking the can, but it's enough to keep the markets relatively calm this morning.

While many traders believe that the European Financial Stability Facility (EFSF) may morph into a TARP-like program, or that euro bonds are inevitable, the Germans remain adamantly opposed. German Chancellor Angela Merkel again rejected euro bonds today, saying, ''In order to bring about common interest rates, you need similar competitiveness levels, similar budget situations. You don't get them by collectivizing debts."

To my knowledge, only France, Belgium, and Spain have approved the espansion of the EFSF. That means 14 more countries.

Elsewhere:

1. Notice how futures rallied at 9 a.m. ET? On these headlines: "ECB, FED, SNB, BOJ AND BOE to launch new coordinated repo operations."

2. Futures dipped a few points at 8:30 a.m. ET as initial jobless claims for the week were a bit higher than expected, and the consumer price index for August was a bit hotter than expected, at up 0.4 percent.

3. Another rogue trader in Europe? A $2 billion loss at UBS investment banking division? It's almost moot to ask if the loss was in equities or fixed income. My favorite quote is from Chris Roebuck, Visiting Professor at Cass Business School in London, who told Reuters: "It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not 'proper' banking, as private banking is."

4) George Soros: The path out of the euro crisis is through Germany. In an article in the New York Review of Books, Soros discussed the flaw at the heart of the euro crisis: The lack of a common treasury. He notes that the EFSF and, after 2013, its successor the European Stability Mechanism (ESM), could serve as a treasury, but it "is not adequately capitalized and its functions are not adequately defined." It is really only set up to provide rescue packages for Ireland, Portugal and Greece.

The biggest problem: It can only raise funds—the authority to spend money is in the hands of the member countries. "This renders the EFSF useless in responding to a crisis; it has to await instructions from the member countries," Soros says.

The recent decision by the German constitutional court, which prohibited any future spending without the approval of the Bundestag, is an example of the problem.

"It is imperative to prepare for the possibility of default and defection from the euro zone in the case of Greece, Portugal, and perhaps Ireland," Soros said.

He makes four proposals:

1. Bank deposits have to be protected.

2. Some banks in the defaulting countries have to be kept functioning in order to keep the economy from breaking down.

3. The European banking system would have to be recapitalized and put under European, as distinct from national, supervision.

4. Government bonds of the other deficit countries would have to be protected from contagion.

How to pay for this? "The creation of a European treasury with the power to tax and therefore borrow," Soros said. But to do this and transform the EFSF into a treasury would require a new treaty.

What about opposition in Germany? "The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake," Soros said. "The euro exists and the assets and liabilities of the financial system are so intermingled on the basis of a common currency that a breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain. The longer it takes for the German public to realize this, the heavier the price they and the rest of the world will have to pay."

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