All eyes are of course on the German stock market selloff as it seemed to come out of nowhere and a variety of reasons are being given, the one of a downgrade being particularly nonsense. The two legitimate reasons are firstly, the DAX is being used as a market to hedge against existing positions in other markets ahead of the decision on the part of France, Italy and Spain on whether to expand the short selling ban or have it expire tomorrow. The other reason is the confusion with what to do with Finland’s demand for cash collateral that the other 16 EU countries don’t have an agreement for. The news that the German Finance Minister saying that the deal between Greece and Finland was ‘off the table’ was out before the DAX opening but all we have to do is look at Greek yields to know that there is a big problem with bailout 2.
Another thought on the market weakness, while BAC investors are all excited about the Buffett investment and its helping to lift other bank stocks, why isn’t there concern that just 2 weeks after saying they needed no new external capital, they are selling 6% preferred stock? If Moynihan really didn’t need the money and Buffett really liked the company, Moynihan should have told Buffett to just buy the common shares in the open market.