The Euro is in absolute free fall. It wasn’t even three months ago that the EURUSD was trading at 1.32. Now, it’s inside 1.22 (1.216, as I’m writing). That’s an 8% drop in 3 months, folks.

I don’t care about market statistics, or elections, or Chinese stimulus. If the euro keeps falling against the dollar like this, it will be absolute carnage.

Even as we speak, US imports are taking it to the chest. Moreover, we have seen that this is not the sort of currency move that aids the home country, in the here and now. Perhaps, after they start to pick up the pieces, having a weak currency will be useful for the Spaniards.

But at the moment, price spikes from this wildness have the propensity to send half of Europe into cardiac arrest.

At this rate, the EU won’t be around by Christmas, and all US growth will be dead and gone.

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I just felt like reminding you that I warned you of exactly what was coming. This post is just me self-aggrandizing – but seriously, lots of people you’ll hear talk a big game. How much of what they say is even grounded in reality?

Everyone’s a champion, until you measure their success. Everyone’s a scientist, until you make them prove their theories.

Here’s what I’m talking about (from January 2012):

Now more directly to our situation here in the U.S.: our GDP is probably about $15 trillion, give or take. Meanwhile, thanks to a cheaper dollar up until mid-2011, our exports were booming and our imports were stabilized, resulting in some steady reductions of our trade deficit…until recently. Our exports according to World Bank numbers, as of 2010, were 13% of GDP; so how much directly would exports have to collapse, by themselves, to utterly abolish any hopes of the U.S. growing?

The answer is about 20%. That reduction would more than suffice to send U.S. growth screaming to zero.

But in actuality, the amount needed is less. Reduction in exports also causes U.S. unemployment which will directly harm U.S. domestic spending. How badly does it skew? Well it’s impossible to lock down for sure, but understanding how consumer participation in networking works, if our trade deficit starts to blow out because of exports collapsing, then the U.S. economy could see a multiple of those base numbers; maybe 2:1, maybe much more. So really a reduction of U.S. exports by 7-10% would definitely be more than sufficient to crush U.S. growth.

And the worst part is, the Fed would be nearly powerless to fix such a problem in the current environment.

Highlight:

So, based on the latest trade reports, I’d guess we’re about one quarter of the business cycle away before hope that the U.S. somehow mystically leaves the rest of the planet behind is extinguished in a plume of disappointment. And the worst part is I don’t think Europe or other markets are going to greatly benefit from our stronger currency because the disappointment from the U.S. letdown will very likely temper purchases of imports. Not to mention that their problems are so extensive, continued austerity and reservation will overpower whatever slight benefit they gain in trade pricing.

In conclusion, dollar strength is persisting because of investors looking for safe havens, a weak economy in foreign trade partners, and a broad drop in most basic materials – energy notwithstanding. This, and the plunging demand abroad plus softening demand at home, is causing the Baltic Dry Index to plummet; which is very likely a good indicator of the direction which economies and markets are headed right now, rather than some sort of false signal. I expect the dollar to continue to gain against other currencies going forward, further decrease in demand globally, a discontinuation for the expectation of growth in the U.S. and most other nations, and eventually a run lower in markets for both equities and commodities as people finally acknowledge these developments and adjust to them.

Wait until I dig out some of my China rants from mid 2011…

Alright. We’re done here.

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If there’s one message that’s been clearly reinforced over the last two years, it’s that there is no substitute for good, old fashioned dollar bills.

Elaborate hedging strategies like shorting and options are all good and fine, but not here and not now.

This is a game.

We’re sitting here patiently, waiting for the end of the world, because a handful of idiots decided to gamble with our well beings on some farfetched prospect of attaining total enlightenment and ending all war, and now the same bastards who did this to us are demanding that we trust them with even more – because apparently we’re supposed to buy that only they know how to save the world.

This sort of nonsense has twice now staved off the collapse, creating the most impressive runs we will likely ever see in our lifetimes. The mere threat of intervention can send us higher by another 20% in a matter of no time.

I don’t need to tell you this.

What I do feel I need to tell you is that there are differences between counterparties and custody of assets. Just ask PFG’s debtors, who are now suddenly being made aware that their loans may actually have been hypothecating depositors.

What good are your options if the people who owe you money aren’t around to pay you? Ask anyone short housing through a Lehman brokerage account how that works out.

What use is an ETF giving you leveraged exposure to silver or volatility or, God forbid, the USD, if market liquidity dries up and/or the funds handlers get blown to shit?

Exactly.

Have cash, ladies and gentlemen. And a contingency policy if cash goes away. You don’t know what’s going to happen. I don’t know what’s going to happen. So play it safe.

There will be plenty of time to gripe over missed gains when you aren’t in bankruptcy.

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Here in the 9th floor office, I am attempting to catch up on the world events I passed by last week while taking vacation.

I spent the week on a lake with some friends. Which was, without a doubt, superior to spending it working. The weather was awesome.

Having looked only haphazardly over the news flow in between lunch and returning to the water each day, I’m sure I missed much. But here’s a brief summary of what I’ve gathered so far:

1 ) Spain is slowly being dragged to its death by the harpies
2 ) Italy is chained to Spain
3 ) We have had almost double digit numbers of EU summits
4 ) Rajoy is dumb
5 ) They still haven’t agreed on what the EU even is
6 ) The banks are losing horribly to the greatest bank run ever witnessed
7 ) China is imploding
8 ) Central banks are thinking about doing something – which is a polite way of saying their hands are completely tied
9 ) Total, actual money contributed for and ready to fight the funding crisis – 0 euros

I’m sticking with 25% cash, but not shorting anything. Silver’s sweet, the uranium market is heating up beneath the surface, and the rest of the stuff I own is fine.

Soon, the US will experience a contraction, all thanks to the euro going to parity against the dollar.

Please refer to my previous writings, as all of this was foretold long ago, in an office very much the one I’m sitting in, on this vary same floor.

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I warned you. Do not underestimate the power of German culture to stear events in the EU. I told you this over 20 months ago. It is very clear that closer union integration in the EU is not a possibility.

Mother Merkel said just today that no debt sharing would occur while she’s alive.

Well then what are we doing here? Spain can’t afford to pay its bills today. It’s not going to be able to pay them tomorrow. It needs to restructure its debt load. The market’s not extending risk to Spain. So that’s not happening without default unless debts are going to be shared.

Issuing joint debt was the inevitable hope for any cessation of sovereignty to Brussels. Without the prospect of joint area debt, there’s no carrot here; just a stick. How is it that the rest of the nations are supposed to navigate the field, when the only outcome is getting whipped?

But then, this has been a false choice from the get go. The fallout has been the only guarantee; I can’t say I blame Germany for calling the game and taking their chips off the table. They have the choice of contraction by a stronger, newly issued Deutschmark, and contraction by extending liability to their idiot neighbors.

Might as well pick the course that keeps you master of your own life, even if it’s a rough life to live. The only other option has them losing sovereignty, any way you look at it.

So the EU is going to break up. Merkel is channeling the spirit of Hjalmar Schact. The euro and the dollar are going to par. We’ll probably need quantitative easing in the next two months to stave off the selling.

The Europeans have chosen their path. They hate each other too much to function under a coalition that’s only adhesive is trust for one another. 1,000 years of culture trumps 10 years of colorful papers.

Game. Over.

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Finishing the day, I’d like to remind you that sometimes things can get extremely out of hand – by a factor of 6 beyond anything you ever thought possible.

Resting in my office from a busy day, I’m finally sitting down to catch up on some pieces and finding my breath.

$ERY, after all, just smashed through all moving averages, and is now on the high side of the range, inside of a single session. ERY is basically a trade against gasoline and to a lesser extent, oil. Does that feel like “normal” behavior to you.

The plush leather of my chair beneath me radiates heat from the sunlight leaking in. And the cold air of the 9th floor office mingles with differentials of warmer current from the dry, ninety degree heat from outside.

There were an expansive multitude who were counting on more easing. I warned you incessantly that this was not such a straightforward issue. I cannot help you now.

Far below, I see the many talentless hedge fund managers caught long commodities beyond their capacity to handle.

The margin calls are about to begin.

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