One need only consult US debt prices today to know money cannot get out of the E-Z fast enough - there is fear and only fear. E-Z banks don’t trust anybody, including their own back office.
Who could have imagined a few years ago that an upcoming Italian 3 & 10 yr debt auction could strike pure terror into the hearts of world financial institutions? That auction is tomorrow and that is exactly what it has done.
Background: We can lump the E-Z together as one great big Canada under liberal/progressive leadership, or, a Sweden, both of which created unsustainable welfare states in the mid-90's; both countries were stagnating, heading the way of Greece - excess regulation, excess government spending, excess taxation. In both cases it only took leadership which was free of pandering, and could explain the economic case to the voter, and, the required pain. Once accomplished, a reversal of course was endorsed; it meant reducing tax rates, reducing spending and destructive regulation, and privatizing much of what has earlier been nationalized. Both countries are now experiencing real growth, and free of heavy debt.
But the lesson was lost on most of the E-Z. When we consider these types we cannot help but conclude that they’re still just a bunch of spoiled brats. And why not? The US has protected them for 50 years; most don’t have to spend one dime on defense. After all, why bother? Better funds otherwise destined for this purpose, go to the entitlement zoo instead. Extravagance without a cost, and it’s our fault!
The lesson however was not lost on the US voter, finally seeing the left more in the role of lamprey than benefactor. Even Democrats are now talking about fiscal sanity, about saving money and paying off debts, doing so because their collective feet are being held to the fire, but doing so nevertheless. Easy promises, the signature of this party, are seen now to be what they always were - theater.
On Nov/9 Nick set out the fundamental and technical case supporting a bearish strategy for the Euro vs the US $, then 1.3553. First target was a re-test of the Oct low of 1.3146; next, “to crack the Nov 2010 / Jan 2011 lows in the 1.2870/2970 zone...” Progress has been satisfactory, last 1.2937. The advice given Nov/9 to add to the position on any strength, worked well.
Finally, Nick has the longer-term target at sub 1.2000 “which is where we think the end-game should..lead to.”
No doubt.
Robert Craven
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