While I know plenty of people are anticipating the same old song to keep playing, it rather appears that European distress has continued to flare up and is making that impossible. Today, Greece has begun what might be called a fire sale of assets, looking to unload and privatize.
Would they be doing this if they thought international assistance was just around the corner? Perhaps, if this is a largely symbolic act, they would. But if it is not such an act, then it marks a new beat in the global symphony.
The IMF and similar world bodies must be very anxious about the condition of other European countries. Portugal and Spain are in the corner of the World’s eye, so to speak. And it is just as plausible that these groups are concerned with the idea of not having enough firepower to put down a crisis caused by the latter, that they are presently toying with the idea of disserting the former.
How this all ultimately plays out is rather complicated. However, the last time these concerns went mainstream, the euro collapsed significantly against the dollar. I have reason to guess the final outcome will look similar.
More directly, a slowdown of the European economies will surely be felt in the energy markets, as demand drops off from an entire continent. That’s one outcome.
Another would be that the EU devalues the euro to accommodate its members, thus strengthening the dollar. Again, here, energy markets, as well as all U.S. denominated assets, would be roiled.
What I am confident in is this: Europe and its countries have a…
…oh wait a minute, I promised some sort of retarded picture for the illiterate in my last post.
There. Continuing.
European countries have a long history of operating by currency devaluation. The historical context of this problem stems from after the Great War. Watching London stagnate Britain’s economy in pursuit of a strong pound sterling, as France benefited from a fixed, low exchange rate (France was the original China, you see), permanently fixated the sound logic of maintaining low unemployment, even at the expense of other citizens.
I do not expect that mind set to change dramatically, even in the face of stronger representation from purportedly conservative groups.
All of this bodes well for the dollar; particularly because it now appears as if Bernanke is getting what he has so desperately sought: wage inflation. I read about wage inflation picking up today, for contract workers.
In addition, unemployment is picking up in the U.S. making it further dangerous for the Fed to continue destroying the USD. Continued easing could force a commodity run that puts the unemployed into a deep poverty. Plus, if wages for employed workers are increasing, bringing about such economic benefits as they do, it will be equally hard to justify continuing the path at hand. The Fed is being pulled apart from two ends, and I think both play to a policy of a firmer dollar.
All in all, I would not be long energy here, with reports of slowing economies and many reasons for a stronger currency. Moreover, I would not push my luck, betting that the Fed continues its policies indefinitely, as that is most certainly not the case.
Similarly, while the destruction of the euro may aid commodities in other markets, or even at home as foreign deposits search for safe havens, but as a rule of thumb I would not count on such a trade, as temporarily it looks like Europe is going to refuse to devalue the euro, until it absolutely has to. And the indirect relationship between the dollar and the euro makes those trades extremely difficult to calculate.
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