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.
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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV