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Sunday, March 13, 2011

Europe Enters Unorganized Chaos

First and foremost, I need to send out my support for the people of Japan.  Natural disasters like the recent earthquake and tsunami make us realize how small each and every one of us really is. 
The Euro is a mistake that cannot be fixed, much like a person getting caught cheating on their spouse with a prostitute because the cheater’s spouse comes down with VD—on the surface you can sell the idea of ‘all is well’ to the masses at the county club, but eventually the truth comes out and everything falls apart rapidly.
The county club that is the EU is trying to hide their diseased whore, despite the fact that she is openly sleeping with many of its members.  While the EU tries to sell sunshine and cookies to the rest of the world, the Euro has VD and it is spreading. 
The EU whore is running rampant in many countries and it is only a matter of time before all the members of the EU have been affected by the disease, regardless of their fidelity to the currency.  While the regular VD may show up as syphilis or gonorrhea, the EU problem is a whoring of their currency and acceptance of a unified currency despite the fact that many EU country’s economies cannot, and will not be able to support themselves without individual currency manipulations. 
Regardless of the level of the sickness in the EU, the band plays on: EU ups bailout fund
The EU will raise its bailout fund from 250 billion Euros to 440 Euros.  In addition to this Greece is getting a loan modification for their loan terms, including a reduced interest rate and extension of repayment terms.  Ireland’s 85 billion Euro bailout will most likely be modified as well.
Treating the symptoms instead of finding a cure.
It seems as if Ben Wizzie is starting to rub off on the EU—inflate, inflate, inflate!  The problem with stimulus is that it is short term and needs to be continued or the effects will wear off.  Europe is not ‘fixing’ any of the problems, but instead is pushing them into the future, in hopes that the present will be better if the problems are out of sight and out of mind. 
More stimulus in the form of this bailout fund is quite the juxtaposition to Trichet’s hawkish stance in interest rates.  Everyone expects a 0.25% rate hike April, and many are calling for 2-3 hikes to battle inflation.  Euro to raise rates in April
Europe Enters Unorganized Chaos
Pumping stimulus for PIIGS and raising rates at the same time is unorganized chaos.  These actions are polar opposites of each other and will have horrible effects when mixed. 
Spain, Greece, Ireland and Portugal are insolvent.  Instead of being able to fail gracefully, or to inflate their individual currencies, they are being held up by the rest of the EU, who has to eat their dirty leftovers from the financial crash.  Raising rates will curb inflation, but it will also curb stimulating measures to grow credit growth and bring back investment.  Stimulus is inflationary.  Who wins? 
Investors will have to decide whether or not to buy many EU nation’s bonds.  I would think that in an increased stimulus, yet reduced growth environment that countries like Spain, Greece, Portugal and Ireland’s bonds will have to pay a massive premium over big brothers Germany and England.
How much would you pay?
Ireland bond yields are almost at 10%.  Is this is deal or a disaster?

Spain turns back the clock.
A Spanish fishing town is bringing back the old currency the Peseta. Spain Says UNCLE
A small Spanish town has reintroduced the peseta currency, nine years after it was replaced by the euro.

Business owners in Murgardos in northwestern Spain are encouraging locals to find old stashes of the coin in a bid to improve the area’s economy.

More than 60 shops in the Galician fishing town have agreed to accept the defunct currency alongside the euro in the hopes of encouraging spending.
This may be the best idea any EU country has come up with in the last 9 years. 
Learn from others mistakes? 
You would think that Europe would see that rampant stimulus leads to rampant inflation, but Europe is blinded—it is a symptom of the VD.  The EU knows If one of the PIIGS does down, they will all fall, and so does the Euro. 
The dominos are in line for one of two scenarios—Massive, unprecedented Euro weakening from PIIGS uncertainty and never ending stimulus or a complete collapse of the currency when Germans have had enough. 
If you are sleeping with the Euro right now I’d make sure to wear a condom.  Double wrapped.


  1. In the current 'race to the bottom' environment, isn't a weaker Euro in Europe's best interest? I'd have to imagine that, behind the scenes at least, the powers that be over there understand that and probably view it as a silver lining.

  2. PS. On this site, I typically have to try 3 or more times to post successfully, due to the captcha not appearing the first few times. This is on IE.

  3. Thanks Eddie-- I'll look into the posting issue. As for the Euro, yes, weaker may be better, but there are absolute risks to weakening a currency based on a basket currencies vs a sigle currency like the dollar. How much weakness is the right amount and how much creates the 'death of the Euro' discussion? I don't think those two lines are far apart.

  4. If a weak currency is the key to economic success, then Zimbabwe should be the leading industrial nation on earth. Is it? In the short term it may improve exports, but if you hold the currency as a saver or investor, you get scr***d long term. The EUR is already a weak currency. If it were strong, the EURUSD would be over 1.60 and an ounce of gold would cost less than 500€.