The damage to European credibility is done; the endless pumps of goodwill and faith have all been expended over months of false statements and rumors hitting a press that is mostly incapable of discerning the occasional statements of truth from the hearsay, distortions, and outright lies.
Merkel’s latest commitment to the euro has thus far bought her nothing. The discounting of EU stability will continue over the coming months with the euro breaking down deep towards the 1.2 mark. The numbers have been run, and re-run, and the masses are coming to realize what the majority of us have known now for two year – in the present reality there is a snowball’s chance in hell that Europe can pay off all its debts without destroying the euro.
Since last summer, it felt like every other day a new rumor about the salvation of Europe would be all that was needed to spark a rally in stocks, commodities, and the euro exchanges. But those rumors came with a price and have done their damage; the fact that almost all of them were wrong has maimed the ability of market participants to take anything coming out of Europe at its word. The days of the never ending fund announcements are coming behind us now, as no one believes them (or even that they could succeed) any more.
No one is coming to Europe’s rescue.
Remember that the euro is the currency of the largest combined economy in the world. Its exchange rate affects global trade; as much as 30% of China’s GDP comes from exporting to Europe; it is equally irreplaceable with other emerging markets in South America, Asia Minor, and the Middle East. As much as 30% of America’s net trade (imports and exports) comes from European relations – which translate to a healthy portion of our own GDP, as unless I am mistaken we are a net exporter to Europe.
It was barely two months ago that the EFSF and swaps from the Fed were going to fix all of this. Attempting to organize a multi-trillion euro reorganization of their budgets and debt, market activities valued the euro at an exchange of 1.4 dollars.
As of this morning, the euro is trading below 1.27, making a loss of the euro’s value equal to roughly 10% against the world’s reserve currency.
That is enormous. It affects all sorts of trade relationships and exchange behavior across the entire planet, and it is not being accounted for. Listening to these analysts at very large banks (like JPM this morning) saying that emerging markets are a safe place to invest or that American markets can avoid being influenced by the toppling of such a behemoth of a standard is not reassuring.
As the euro continues its slide below 1.3, watch for a great multitude of projections, on all faculties of the markets from revenues to earnings to asset/liability valuations, to be broken utterly.
And so it fell to its knee, with a great crash.
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I’m looking forward to acquiring a cheap Mercedes or BMW.
Wow @ natty as well…
Equally disconcerting is the fact that the Euro has fallen against a reserve currency that itself has fallen significantly over the past 3 years.
Sounds like a recipe for sound money, no?
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Nobody cares about Europe anymore
Cain, take my advice and turn off your brain
Use alcohol or drugs if you need to
You think its a coincidence that oil was rallying during the holidays but gas at the pump was sitting on its lows? (allowing the consumer to buy more bullshit) Now all of a sudden gas at the pump is catching up.
No president has gotten elected with unemployment this high, and he will get re-elected – therefore unemployment is going down and the markets up
The game is rigged, when you accept that then you have the advantage.
We are due for a pullback, but stocks like AA are at prices which allow for 100% gains.
I care about Europe that’s why I am “Nobody”
European demand has been and important for world GDP and without growth in Europe where wages are relatively high you need a lot of growth in low wage countries to sustain consumption. That said I agree with Cain.
Furthermore the China slowing, maturing, hard landing, whatever, will be troublesome for Europe since China in my opinion has been the marginal consumer of manufacturing machinery and luxury goods which has helped Germany. The Chinese are already warning of overcapacity in several industries and when they stop building steel plants and cement plants so that they have materials to build steel and cement plants there will be at least a decade of capacity overhang if not more.
Some of us old nobodies have seen plenty of construction boom pop and demand stay depressed for a decade. Collapsed construction projects stayed holes on the ground for a decade and a half and we have survived through these cycles. So lots of things are the same and some things are different. What is scary this time, and I am talking about the China whatever here, is the sheer scale of the manufacturing capacity bubble relative to the rest of the world and this running up against slowing working population growth. Past collapses relative to the world share of manufacturing capacity have been modest and Asian growth has relatively quickly absorbed the capacity overhang so what will save us this time? Perhaps we can ramp up exports to Juupiter