We want to exploit any major price change - elation - associated with a near-term E-Z “cure.” This is especially true for investors/spreaders who may wish to take a long-term view of this region.
The E-Z template was imprinted on the US because a radical gained traction (McGovern, the only other radical to come up, thankfully failed). This was a first. Americans witnessed the repercussions and want no more of it (as demonstrated Nov/2010). We have a statist, interventionist president who is an economic illiterate, one who had a direct hand (along with Clinton, Dodd and Frank) in creating the crisis of ‘08, and then went on to make it much worse.
At one point Obama was even being lectured by E-Z types for his reckless ways! Now, our so-called “red” states, those which lean conservative and reject the way of the levelers, are healthy; our “blue” states are all broke. The anti-democratic and redistributive mentality of the E-Z is an experiment that failed here.
The US masses have begun to catch on and know now that “stimulus,” Obamacare, buying into GM, new regulations, all the rest were snake oil, something from a 19th century medicine show which came with a hawker, often called professor or doctor, who sold the magical elixir to cure all ills. In this case, none of it worked (except for unions). As a result, the majority of US voters now cannot quickly enough embrace the notion of less government, lower taxes, less intervention and a fair and level playing field.
There is no similar hope for the E-Z. The governing elites are about to impose policies that increase the power of government. There have been some spending cuts but these are more than offset by higher taxes. A significant contraction of the public sector (beyond a token), any major reduction in stifling regulations, a sound currency, lower tax rates - forget it. In fact policy on the whole will be set to penalize the private sector.
For those who make their living trading relative value around the globe, understanding this reality is key to success.
Thus, given the opportunity investors will want to spread N American credits (Harper’s crushing of the left in Canada provided a spark for that country’s economy), the UK and perhaps Japan to E-Z credits, including Germany. For the near term we can include China but unless we have real reform, not for long.
Robert Craven
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