Let me draw up an analogy for you.

You have $100,000 in your account, so you take your checkbook and go on a little spending binge.

You write checks for a new corvette ($50,000), a 1955 Classic Mason 45 Ketch sailboat ($30,000), five bottles of Remy Martin Louis XIII Cognac ($10,000), one of these foreclosed houses ($40,000), and $20,000 in cigars to top it off.

Nice work pal.

Unfortunately, you just wrote checks for one hundred and fifty grand on an account good for one hundred. Assuming your revenue sucks (and it does), and you can’t just deposit more cash (you can’t) you have something of a situation on your hands, now don’t you?

So here’s my question to you: which of the below answers fixes this problem?
(1) Ignore the problem and hope it goes away
(2) Beg the people you made the checks out to not to cash them
(3) Balance your budget going forward
(4) Take out a massive loan from yourself
(5) All of the above solutions fucking blow and you’re pretty screwed

If you answered (5), congratulations; you don’t totally suck at life. To everybody else: I hope you realize how dumb you’re being. There is nothing – let me repeat that: nothing – that the EU can do to avoid this hit. Unless of course your name is Marty McFly (or just The Fly), and your solution is to go back in time and stop the EU sovereign nations from being retarded.

If you are not fortunate enough to be a time machine wielding adolescent or Plutonium Petey, then I’m afraid your faith is misplaced. The EU has tried (1) determinedly, but unfortunately it’s difficult to not notice the mobs of people you owe money to preparing to rip through your living room to set your house on fire. When that failed, they sort of skipped to (2), trying to get creditors to just roll the debt over or take a “voluntary” haircut.

As it became obvious that they were not going to EFSF this problem away, then they started talking about balancing their budgets going forward. Ask anyone who has ever over committed their checking account how well balancing a budget going forward helps you. Fascinatingly, your past obligations still overdraw your account, leading to havoc.

Which led us to (4). The problem is convincing some of you that (4) is actually as silly an argument as it sounds, as most of you don’t have a printing press (or savings, for that matter). But precisely because it sounds ridiculous, I see lots of you are convincing yourselves it’s a real solution. It isn’t. Printing money will simply transform this whole affair from a debt crisis into a currency crisis. So sorry, but the LTRO will simply cause this problem to manifest itself in another way. And not all money printing leads to inflation. Sometimes, money printing leads to quick, short inflation, which almost immediately leads to crippling deflation when the savings of citizens are depleted and demand collapses.

Which leaves us with (5); admitting you’re pretty fucked and going forward. I don’t see what’s so hard about this option, but some of you seem incapable of honest assessment, so the euro goes above 1.32 while the Greeks adamantly burn their city-states to the ground. If that seems illogical, it’s because it is.

I am very sorry to offer you this rude awakening but: this crisis does not end with Greece, and the euro has not stopped going lower yet.

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“Today’s imminent announcement of an agreement with our creditors will not be coming, er…today. Please forget all the hype that has been flooding the airwaves for the past three hours.”

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Sticking with my “USA Kicks Ass” revelation, I just can’t be afraid of Europe.

I mean, sure Greece is now running weeks over the threshold for reaching agreements with their private creditors, and their people are rioting in the streets in opposition to any further austerity measures…measures that are being demanded by the people with the power to deny them a bailout. But I’m sure they’ll all come together and play nice just in the nick of time.

Oh, and don’t look now, but the commentators who have been parroting “Portugal is not Greece” are getting ready to eat their words – again. Rumors are that Portugal is presently hiring a consultant to help them restructure their own debt. Yes, once again, bank analysts repeating that Portugal will not restructure until they are blue in the face, it seems have indicated that restructuring is actually imminent.

If Greece and Portugal both restructure, I wonder what the Irish will do? And each country that restructures is another slap in Germany’s face. Let’s not forget, Germans are not big on these open ended commitments to the vast debts of foreign nations that, at one time, Germans used to invade for sport.

And of course, there’s the ECB. Soon, very very soon, markets will have to accept that the sums of new money being prin – er, excuse me, “loaned” – to Europe from their central bank are going to render the euro worth much less against the dollar. The latest I have heard from bank analyst “experts” is under 1.2 (I think it was 1.13). But who are we kidding? These guys are always rosy.

I’d guess par is totally attainable this year. All you need is one trillion new euros printed. Wonder what that’ll do to US manufacturing?

But you know what; I don’t care about any of these things, because America is back. We are going to punch holes through mountains, because the EU doesn’t matter to us. Mind you, I’m not putting any money on that outcome. But I will totally continue to cheerlead it.

That makes everyone feel better, right?

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As we speak, Fitch is nuking ratings across Europe. Not that it matters for much directly, but when all the ratings agencies reach agreement, there could be some fireworks from funds obligated to sell.

Unless Europe is smart, quick on its feat, and able to undo their own financial regulations…

(laughter)…

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Look, this will sound silly, because I’m basically arguing that you should worry when European yields go up, and ignore them when they go down. But that is exactly what you should do, and here’s why:

The ECB is doing the buying.

Now, on that point alone, the ECB can make EU bonds look as low as they want. Markets and auctions are funny things. You could have 99% of trades say that Security A is worth $10. And then the final 1% of trade activity can go for $15 and suddenly the 99% of price discovery never mattered; except that it did matter, way more than a few dumbasses crowding in overpriced sales at the end of the day (and especially if those trades are designed to create suckers to buy much larger volumes of Security A tomorrow at inflated prices).

That’s what’s meant when people talk about markets “pricing on the margin.” It’s why econometrics rarely predicts anything. It’s why, in general, you can get massive bull rallies on little to no volume, or huge price collapses on the same.

The ECB could make Italian 10 years tomorrow read .01%, and it wouldn’t change the situation in the least. But if they did that, then the jig would be up, now wouldn’t it? They’d be called out. So instead, it’s steady drift downwards, and much talk of “renewed market confidence,” which these bastards are still convincing themselves is all that’s missing from the grand success they deserve.

There are two outcomes here which should concern you, given the magnitude of the debt that needs to be cycled. The first is, the ECB keeps buying their member’s bonds, while professing they aren’t/won’t/never, and receiving no help from private equity markets.

In this case, the euro goes to par against the dollar, and our (U.S.) exports go to zero.

The second is, the ECB, realizing they will not trick private market participation, throws in the towel and sends some very large nations into default.

In this case, European demand dries up, and…our (U.S.) exports go to zero.

Are you seeing a pattern here?

The case that avoids these outcomes is not contingent on printing/no-printing. It’s contingent on cooperation from private creditors willing to roll over the debt on their backs, and keeping the EU monetary supply in balance.

If that happens, I will be proven wrong and I will reluctantly cover my oil and energy shorts, hands in pocket, face to the ground.

But now, I ask you, are private markets falling for the “All is well! All is well!” sounding board? Bank participation in European debt is at an all-time low. Money is being held up in reserves. Corporate balance sheets have never been higher. Greece and Portugal are looking read to go over the edge.

But hey, Italian and Spanish yields are lower. Just this: who’s buying?

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I’m back in the swing of my usual day, after spending most of the weekend in western New York, attending a funeral service.

Weddings in the summer…funerals in the winter…that about sums up my years.

Now, for whatever reason, oil markets are cascading down, bowing to reason. I don’t know if this will be the lead up to the big plunge, or if it’s just another head fake before more pain. But what I do know is that oil prices right now are completely unrealistic. Oil should be in the $80’s, at most.

The Iran embargo is only better for oil prices. There’s more than enough oil for the major economies, but we fight over every barrel produced. The embargo is a de facto division of the planet’s oil; Iran and some others go to China; the rest of the Middle East is Europe’s; and China and Europe in turn butt out of American oil.

This simple restructuring could allow prices to plummet, as you can bet supply will not be affected by this act. However, demand will be controlled, artificially, by non-compete agreements. We’re making a buyer’s market here, but you are all too busy crying in a corner to see the big picture.

Finally, Europe remains a train wreck. The issue at hand is not a Greek default, although it’s proven very funny watching the talking heads go from dismissing a Greek default to declaring it imminent but dismissing any real consequences.

You lot are nuts; the big looming issue is that Europe, in net, needs to either default on a trillion euros this year, or print them, because private markets are not in the least interested in investing in countries with 100%+ GDP and swelling incompetent windbags for leadership.

If (When) Europe continues to break down, the repercussion is going to be U.S. exports that crumble. That will crush U.S. growth as U.S. multinational conglomerates, plus half of emerging markets, are going to see earnings get slaughtered from exchange rate dependent “one-time” line items…indefinitely.

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