The ECB floods the bond markets with fancy new euros on debt that has a 50/50 shot of not being worth the paper it’s printed on, and the euro rallies?
Damn, wish we had that kind of setup here. Hell, we have the opposite problem. Our currency isn’t being weakened at all through policy, yet bat shit crazy forex traders pump it if Bernanke’s lip quivers or his eye lid twitches.
I know the argument: “WELL…good chum; the euro is presently pricing in the collapse of the EU. So-oo MO-ST obviously, printing increases confidence that the EU will not collapse, and gives cause for it to rally.”
Sure it does.
You can’t tell me the euro is pricing in the complete dissolution of the EU at a calamitous 1.35. That’s barely the bottom of the range of values its hit over the last two years. And, frankly, I don’t know anyone who thinks the EU is going to breakup. In fact, I don’t know anyone betting on any countries leaving the EU right now either.
You want to know what a euro would look like that’s pricing in a major split of the EU?
Try something like 0.80.
Maybe a 0.90 would even be representative. You can bet your ass it won’t have a 1 in front of it. An EU that the market accepts is imploding on itself will not have a currency stronger than the United States. If you’re betting the euro rallies because of something as intangible as renewed confidence, at these prices, I guarantee you you’re early and asking for a beating.
Really, we’re at the point where lost economic activity and the immediate demand for money all but ensure the euro continues its slide. While internal demand for euros has never been higher due to debt loads, they have zero incentives for foreigners to buy in; there’s no good opportunity associated with holding European notes. If the EU had wanted to avoid that outcome, they probably should have done something about it two years ago, when the seeds for this crop of weeds were planted.
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Here here. Pip pip. And all that jazz.
Excellent post.
If we continue down this road, I wonder how long it is going to take for this sentiment to change. If no clear way forward is given we aren’t just going to limp along forever. But clearly buying Euro’s on any perceived “good” news is still a profitable trade for the bots. I sometimes wonder if they are even capable of changing and if the current correlations are just here to stay, however absurd they are and regardless of what people say about learning computer models.
Bot trading gives huge bias to direction. But you can bet that when the losses build, they get shut down quickly.
That and momentum traders are probably the single biggest reason we get these steady massive builds followed by washouts that level markets in a week or two.
A lot of people forget that when the Euro first launched it was 80 cent on the dollah (sic).
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Let’s end this experiment already. A bigger monetary union is just more power and incentive for the lucky handful of people who worm into the driver’s seat.
Small monetary unions with lots of exchange rates may be more tedious to manage, but they also don’t rip a hole in civilization when one of them blows up.
Agreud. It’s bad enought that little socialist weasels like the Hotel Rapist get free Air France cross Atlantic flights out of it.
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Thank you for sharing your insight. Eventually logic will trump hope
if the market closes lower today, I think it will go down hard and fast next week … even the turkey God cannot save this one …