The ECB just added more than 400 billion euros to the equation, and got yields of European debt jumping across the board in response, so you think it’s a good idea to buy stocks and commodities?
Now Cramer’s talking about some mythical snake that eats itself as the solution to all the world’s woes.
How bad do you think things were, if the ECB felt the need to drop that much money? How close were we to the edge? Do you clowns even think about that, when you’re pounding the buy orders or dropping snarky remarks in my comments section?
This is not an easy tape, and if you’ve managed to make money, I salute you. But don’t pretend like you’re brilliant for putting your head under a steel press and making it out alive, either.
Here’s the deal: if the ECB decides to force a rescue through the banks, we’re going to wind up with a European banking system that’s more levered than any other time in the history of the world. It will be colossal, and in order to make it a happen, between then and now a lot of regulations like capital requirements are going to have to get bent or broken.
I’m not convinced it helps, but sure, if they manage to spread out the debt over the course of a few decades, I will stop actively hedging myself and betting against a collapse of energy prices. I’ll take my lumps and move on.
But the euro is most certainly screwed. I don’t care how many people are betting against the euro, if the ECB keeps dropping money like that they’ll all be justified. And if they take the strikes against their currency to far, you will regret ever playing the long side of this market. Euro devaluations do not fundamentally aid commodity prices save where they create new demand; they definitely hurt the American economy; and they embolden the U.S. dollar significantly a.k.a. that thing that oil is priced in.
It’s possible that the currency swaps the U.S. has provided will create an out. But remember that Europe needs those euros in circulation if they intend on rolling over their debt. Burying new money in America is of limited usefulness, if the people in Europe can’t afford to let it go.
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Yep.
Mark Mobius Sees End to Euro Crisis by June: Report
Published: Wednesday, 21 Dec 2011 | 7:33 AM ET Text Size
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Mark Mobius, the Franklin Templeton executive who pioneered emerging markets investing, expects Europe’s debt crisis to be resolved in the middle of next year, sparking a rise in global bourses, Brazilian newspaper Valor Economico reported on Wednesday.
(laughter) yeah, I saw it thanks.
back to a gold standard,then the euro might survive. anyone that thinks they can put a time or a date for something to be resolved is bullshit to say the least.if “it” will be resolved in 6 months,then why was it not resolved 6 months ago?
I doubt the gold standard would help here. The critical issue is that Europe cannot pay its bills by giving fair value for its obligations. You don’t get around that. You can only pick who is left holding the bill.
The Euro is functioning precisely like a gold standard, hich i why it’s doomed!
Cain, what about the Bernank paper of 2004 whcih specifically talks about the Fed buying foreign soverign debt in, you guessed it, a low interest rate environment. I grant you it kicks the can down the road but it buys some more time and hope.
is thi not the Bernanke global put?
It frightens me every night, but I think the key element to Bernanke’s papers were that deflation still be an issue.
It’s hard for me to argue that deflation is taking hold right now, after the commodity run we saw in 2010.
Right now, Bernanke has a choice between death by Europe or death by inflation. I just don’t get why he’d willingly take the inflation path right now, when that would make the collapse his problem and create a rallying cry for his head.
If he waits a few months, we get the same outcome and people will clamor for him to intervene.
Either way, someone is going to take a hit. Europe cannot grow out of this problem, so a restructuring will be a death knell to somebody. And I’d bet that somebody is going to be long fixed income securities.
Currency swaps the US provided could also be considered part of a “global bernanke put”.
I’ve addressed that though; how does borrowing dollars help you when you need euros?
Once Earl has the Benjamin (Franklin, not Bernank) in his rear window, he’s not going to see it again for a long time.
That hour cometh.
______
And which way are they driving?
I heard these same arguments in 2007, Jake. Not even a year later, BAM! oil trades in the thirties.
I think someone will really get fucked, I just have not figured out who yet, but as the saying goes, if you do not know who, it is probably you !!!
I feel violated !!!
great post!just watched the movie margin call, it could apply here. i will end this year down .5% but i consider it a win. europe is still not adressing the problem, but here in america we also r in the pooper.
Given the dire circumstances you would think the EURO would already be much lower by now, possibly even at or around PAR, but it’s not. Why is that?
Deflation is a much faster acting catalyst in terms of affecting political change than is inflation; therefore it’s clear that the U.S policy response will be to inflate (only in a much more clandestine way). As Jim Rickards posits, it’s in the US and China’s interest to maintain a relatively strong Euro so they will do what it takes to make that happen. He is suggesting that big BEN will further intervene if the EURO drops below the 1.27 mark or so – It’s a race to the bottom and we have the fierier of printing presses.
As for the SWAP lines, and forgive me if this sounds retarded, but can’t EUROPE take the borrowed dollars and simply exchange them in the open Market for Euros? This too would have the effect of strengthen the EURO vs Dollar.
Sure Europe could bring the dollars to market and force the exchange to their favor. It feels like people are already discounting Europe sending the money overseas and out of their local economies anyway.
But I don’t care how they make the dollar weaker, because my point is that making the dollar weaker hurts the global consumer here.
Does it matter if the currency market just prices a higher euro after learning that Europe is printing and using the swap line, or if the EU has to directly apply the swap to force the exchange higher? That’s a distinction without a difference.
Once it happens, and oil screams to $120, what do you think is going to come of it?
Could the Euro be fucked and the shorts wrong at the same time?
Probably.
Cain, do you follow TVIX, if so, why did it fall more than 10% today ???
I don’t follow it no
by the way, from early July to early October, TVIX went from 15 to 110, that is 7-fold increase in 3 months …