THE BASIS POINT

Roubini, Mauldin, Yamarone on Eurozone breakup

Doing some catch-up reading on vacation this week, and here’s one worth sharing. Mauldin’s June 17 piece was a reprint of Nouriel Roubini’s June 13 case for why the odds of a Eurozone breakup are at least one-third over a five-year time horizon. John Mauldin, expressing his anxiety, thinks “Dr. Doom’s” timeline is optimistic. Roubini also shares these who’s-next-after-Greece excerpts from an email thread with Bloomberg chief economist Richard Yamarone:

Ok, this just thoughtful insight in from my friend Richard Yamarone, chief economist for Bloomberg. It is part of an email thread where a number of us were commenting on the recent swoon in the market and how much of it could be tied to Greece?

“When Greece folds like a wet gyro, and it will, the real game begins. It’s no different that when Bear was taken over by JP Morgan, the markets ignored the Bear Stearns story (the media didn’t). When all business televison and newspapers did stories about the $2 price tag on Bear, investors were saying ‘who’s next?’ The fact that Bear went down was old history — most knew it was going to happen. The focus was where do we turn next?

“The Greece story is like the sick uncle at the annual family picnic…Mom would say, go take a plate of food to Uncle Larry, he’s really sick. This goes on for three, five, ten years. Then Uncle Larry dies. Everyone turns to each other shocked, ‘I can’t believe that Uncle Larry died!’0 What’s so surprising? Everyone knew, he was dying for over a decade. That’s what’s going to happen to Greece…The financial press will say Whoa, Greece folded, defaulted, whatever. But the markets will say, ‘Who’s next?’ Then the entire EU will come under pressure. I don’t believe they will exist in two year’s time. – Rich”

Could The Eurozone Break Up? Roubini & Mauldin