What always bothered me about the disaster scenario in Europe is the acceptance that it can't be avoided no matter what. The banks are too big. The countries are too big. The problems are too big.
So, disaster has to happen (disaster being a cascade of epic proportions, one country after another until, well, until what? Armageddon? Nuclear war? The end of life itself?)
Why can't we simply have a scenario where the standard of living of countries drops as their governments can't provide the services or jobs and many people are under- or unemployed? Where the debt of many countries that don't go belly-up gets downgraded and many people who work for banks lose their jobs.
Does that mean all the credit in the world dries up? Does that mean the end of the world? And that's if everything goes wrong.
Now, we are getting a different way out. Banks get downgraded as they have to take the hit on bad country debt. Any bank that has a run on it is going to get money from the EU, the IMF and the countries themselves. The countries will force mergers and crunch the debt of the banks. There will be big losses. But there will be some banks that are like Citigroup (C) and some banks that are like RBS.
We will have a recession in Europe but it will bounce back over time. Armageddon will be avoided. All that happens is that will things will be very bad. This is a rally based on the conclusion that things will be very bad in Europe. But there will be no Armageddon. It is a recognition of the fact that there will be sacrifices for certain, but the problems will be dealt with.
It is a rally based on a recognition that Greece will collapse and many countries and banks could collapse after that and life will go on.
That had been unthinkable not that long ago. It is thinkable now because we know there is a gathering will and we know that the world has ganged up on Europe and we know that countries will lose their cherished credit ratings. So be it.
Is it a world where I want to go out and buy all of Europe's banks? No. Their equity and maybe their bonds will be sacrificed.
But I actually might want to get ready to buy some European stocks that have been crushed getting ready for the Greek default. Worse that happens, I get nothing to buy.