This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greece Loses - You Win

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Deb Borchardt joined NBR Monday (watch video and read transcript here) to highlight stocks that might gain if Greece defaults.


NEW YORK ( TheStreet) -- The U.S. stock market seems beholden to Europe's debt problems these days, but so far the concrete developments have been few and far between.

The major equity indices always seem to get a lift whenever there's talk of a rescue plan for Greece, but so far, it's been all talk -- not real action. The problems with Greece have dragged along for three years now, but it looks more and more as if the powers that be are circling the wagons and preparing for the worst.

Word on the Street

The latest rumor is Europe's leaders are trying to put together a plan to recapitalize the banks over there. Unfortunately, such a plan would likely impact France's AAA rating and endanger the European Financial Stability Fund. Still, shoring up the strong banks in advance of a structured Greek default is a good way of calming people's fears.

If this comes to pass -- a strengthening of the banks so that in the event of a Greek default, financial institutions would be better able to withstand it -- then what is the best positioning for portfolios? There are a couple of ways to prepare for such an event. One is avoid the banks like the plague. All the banks are interwoven, while a regional bank probably has little exposure to Greece, the market tends to not discriminate and usually throws the baby out with the bathwater. The big banks most definitely would be affected by a Greek default. Most have already tumbled, but that doesn't mean they couldn't drop further.

The most obvious outcome is that the Euro crashes. The easy way to play this is the ETF ProShares UltraShort Euro (EUO). This ETF goes up when the Euro goes down. If you compare this ETF on a chart with the Currency Shares Euro (FXE), you see they move opposite each other. The FXE just recently crossed over the EUO. If this continues, expect to see the EUO to move up. If you think the Euro is done for, this is the ETF for you.

If you think the banks will be in hot water when they finally are forced to take a haircut on Greek bond holdings then the FAZ is the top pick. This is the Direxion Daily Financial Bear 3X Shares (FAZ). Morgan Stanley (MS) knows all too well what happens if the sharks smell blood or in its case, French bank exposure. The thinking is that if Greece goes then French banks will be severely damaged and if Morgan Stanley has $39 billion worth of French bank exposure -- Well, connect the dots.

Morgan Stanley isn't in this alone; the Bank of International Settlements believes there are $32 billion worth of credit guarantees written by U.S. banks. JP Morgan Chase (JPM) has roughly $36 billion in exposure to the PIIGS Portugal, Ireland, Italy, Greece and Spain . Goldman Sachs (GS), which originally helped the Greeks restructure their debt only to have it blow up, is probably the best positioned. They clearly know what's under the skirt and will surely profit. Goldman does have $8.3 billion in exposure to Ireland.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
EUO $26.90 -0.19%
FAZ $12.41 0.24%
TVIX $1.70 0.00%
AAPL $124.25 -0.14%
FB $81.66 -0.67%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs