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UBS On The Exasperating Euro
And you thought you had a problem timing a currency that trades hundreds of thousands of pips up and down in the span of a month... UBS strategist Syed Mansoor Mohi-uddin can't wait to tell you all about his own personal troubles with the crazy European currency. In a nutshell, UBS, just like Zero Hedge, realizes that QE 2 would be the end of the USD. However, with Europe continuing to be a far weaker continent from a banking/financial standpoint, to believe that the race for the global currency bottom is close to over is more than naive.
The Exasperating Euro
Syed Mansoor Mohi-uddin
Strategist, UBS
For foreign exchange investors there’s nothing more exasperating than the euro at the moment. Having fallen from above 1.51 against the dollar in December to below 1.19 in June, the euro has since bounced smartly back to above 1.30. Defying predictions of a Eurozone break-up or a further perilous decline to parity, the euro has instead wrong-footed many in the currency market.
Indeed, exasperation explains one of the factors behind the euro’s correction, as investors had become increasingly bearish on the currency. The belated bailout of Greece, sharp bond spread widening within the Eurozone, concerns about competitiveness, and political tensions within Europe all convinced foreign exchange participants that the euro had become a one-way bet. Hence, the euro’s summer recovery has been the clear pain trade in the currency markets, forcing investors to close their shorts.
The reversal in the exchange rate has been driven by stronger data in the Eurozone and renewed concerns about the health of the US economy. In particular Germany’s super-competitive exporters have benefited from the slide in the euro in the first half of the year. An excellent reflection of this is the continuing strength of the Swiss franc. As Switzerland sends 20% of its exports to Germany, the franc is a proxy for the largest economy in Europe. In many ways it is a substitute for the old German mark.
In contrast, the dollar has fallen this summer as weaker US growth has forced Federal Reserve officials to consider resuming quantitative easing. As last year’s inventory bounce has begun to wear off, structural concerns about the health of the US housing and labour markets have come to the fore again.
In the near term the euro is likely to keep its gains; there are still shorts in the market and fears about the Fed will keep the dollar on the back-foot. But the longer-term picture remains bearish. The structural problems of high debts, low growth and diverging current account imbalances remain stubbornly high. Fiscal austerity will undermine Eurozone growth this year and next. The European Central Bank won’t be in a position to raise interest rates until well into 2011, at the earliest.
What are the risks to our long-term bearish euro view? The major concern of course is the Fed resuming asset purchases in order to expand US money supply. This would undermine the dollar as it did in March 2009 when the Fed started a year-long programme of buying Treasuries and mortgage-backed securities. The other concern is that the consensus among foreign exchange participants remains bearish on the euro. As a result, their positioning would keep the markets vulnerable to further exasperating rallies in the currency.
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Making money in this market is so easy a cave man can do it. Buy any and all dips, make free money till November election.
I will bet you won't be around in about 3-4 months
Yes, thank you. I think you have mentioned that 8 or 10 times...
Yes I totally agree.
The turn around in the Euro was obvious. I got out at 1.22. Not brilliant but OK by me ! (Was short at 145)
The short term game now in town is Sterling. That was signalled from the moment the UK Budget said, "We have no intention of defaulting on our debts."
The UK cut govt spending and raised taxes. Whether that is good for the UK economy is irrelevant. It was incredibly bullish for the pound. Well I jumped on board early and now it is a matter of sitting tight and following the trend.
I do own physical gold.
it's idiots like you that are the problem .....
Huggy. Nothing like a bloody good laugh !
Ha. No one gives a shit whether you bought the low and sold the highs ... again...and again...and again..... You're just another random punter with no edge.
So what you are saying is that the guys on the other side of your trades are the useful idiots? if that is the case you should be thankful.
And when you loose on your trades, you are the usefull idiot of those who bet against you. Correct?
need 1.3267 - its coming
i wouldnt take my entire position off at that point. Possible pull back after 1.3267 but 1.33539 followed by 1.35101
Obviously this is all relevant because (1) of how the crosses drive the markets these days; and (2) that there will be a lot of money made and lost in the currencies as they go back and forth as to which one will devalue/collapse first. But that's the tough part - as relative value plays how do decide which government will do what to prop up/devalue, which HFT traders will borrow/carry what etc. - all on the way to "parity" (at zero).
Buy gold.
Take possession.
Sleep well.
Profit?
The last part is definitely a sure thing. Profit, you will. The problem as always is timing. How much time you got?
i have reason to believe that the canadian mint is having supply problems . anyone with information regarding this? thanks.
Why do these analysts always seem to be seeking an ex post justification for what has already happened without shedding any light on the future?
Look, Euroville has the same "problem" we do: a college-educated class which is still 90% employed. Which means they still have money. Which means they still have assets which Mellonesque liqudiation can loot.
As long as that is the case, the powerful will use any tool at their disposal in order to draw that cash out of the middle class as long as it is available.
What will happen is that, by some bizarre concatenation of our various morbid economic tendencies, economic activity will suddenly decline catastrophically. That will suddenly end middle class jobs and income.
Then the Euro collapse for which you are waiting--this currency race to the bottom--will occur.
But not before. Until then, OBVIOUSLY, the chief concern is not to scare the middle class, so that it will continue to shell out money instead of putting it under their bourgeois mattresses.
Mellonesque liquidation is a serious, scholarly, long-term affair. Sell anything else short you like, but DON'T SELL MELLONESQUE LIQUIDATION SHORT.
It has spent 70 years building up a nice big fat bourgeois pigeon. That pigeon has to be induced to waddle over to the trap. That takes some time. Wanna see how close it's getting. Track college-educated unemployment. That's the ONLY statistic that matters. Pay attention to it.
I have a friend who manages a Target store, he says bachelor and higher applications for $8/hour jobs is huge, does that count for 'tracking college educated employment data'?
Who cares if it's "HUGE"? Triple the BLS figure and you STILL only have 13.2% college--educated unemployment. That means any kind of imminent collapse of the economy??? Don't make me laugh. Get real.
You're a bit of a condescending lad, but I welcome your thoughts that are a bit off the path. Interesting metric you discuss here.
Nice post DR. I like the pigeon metaphor--LOL--but it should be a chicken. Chickens cluck a lot, shit everywhere and can be delicious to eat if they are free-range and not fed DPW. Unfortunately, we college ejycated folks have been eating a lot of DPW with our industrialized agriculture. Pigeons are too free-spirited and don't have much meat on their bones, even when fat. Whereas chickens generally live in tiny little cages with no freedom of movement. Sound familiar?
You come across as more of a marxist than a follower of Ricardo with your theory of Mellonesque liquidation and focus on the bourgeoisie. Perhaps the avatar is just to ward off the Stasi?
"As long as that is the case, the powerful will use any tool at their disposal in order to draw that cash out of the middle class as long as it is available." This reminds me of a book I read about oil, which concluded that the oil companies will never permit us to end our dependence on oil as long as there is a single drop of oil in the ground.
I doubt that there is an actual conscious conspiracy of one class. I think rather that opposing class interests create a dynamic that acts in lieu of a conspiracy as such. In effect, the trap to which you refer is more like an attractor with a basin of attraction which we have entered, speaking from a dynamical systems perspective. The attractor is not visible to us, and only exists in a mathematical sense. We are moving along a flow line toward it. It may be a singularity, a closed orbit, or even a strange attractor which will alternately pull us toward it and push us away from it.
Keep posting!
So, as long as we keep comparing European used bidet wipes to US used TP wads, we can keep playing global currency arbitrage for fun and profit?
See? Even a Mises clown thinks you're silly!!
I'm flattered. In an equivalent sort of way.
"What are the risks to our long-term bearish euro view? The major concern of course is the Fed resuming asset purchases in order to expand US money supply. This would undermine the dollar as it did in March 2009 when the Fed started a year-long programme of buying Treasuries and mortgage-backed securities."
See? Look below. Feel free to double, or even triple, the figures, since these are, after all, BLS' bs figures. Still. You think that somehow ANYTHING is going to change with college-educated U.S. unemployment at 10 or even 15% percent.
They're still playing the music, so we're still dancing. Grow up and face the music.
Bachelor's degree and higher(2)
Civilian labor force
45,242 45,573 45,911 45,525 45,694 45,800 45,879 45,718 46,246Participation rate
77.3 77.0 76.7 77.7 77.0 77.2 77.3 77.3 77.3Employed
43,048 43,561 43,868 43,367 43,418 43,549 43,642 43,581 44,200Employment-population ratio
73.5 73.6 73.3 74.1 73.1 73.4 73.5 73.6 73.8Unemployed
2,194 2,012 2,043 2,158 2,276 2,251 2,237 2,136 2,046Unemployment rate
4.8 4.4 4.5 4.7 5.0 4.9 4.9 4.7 4.4This is ridiculous. Both the Euro and the dollar will remain relatively strong, as long as both political systems remain strong. I see no evidence that American homeowners have decided to overthrow the American government. Until they do, YOU will be confounded by the powers that be. It is their policy to confound you, and it's silly to think--with college-educated unemployment at only 10%--they cannot do so.
Please try to be a little more realistic. Please come to an American suburb and actually see how people are actually living, day to day. Hmmm. Most seem to be still working. Most seem to be still spending. Yeah, and that's the way it's gonna stay, until it is no longer that way. Existential, ain't it? Well, it's a lot better than speculating the boys up top will lose control. Nonsense and idiocy.
If you want to do some useful work, show me the time- and event-line which will bring college-educated U.S. unemployment to 40%.
I'm sure it has NEVER occurred to you to consider this an economically or politically important event. Funny, that's all they think about in Washington.
Yes, things seem to be moving along ok for the moment. But the cracks are starting to show. It is mathematically impossible for the fractional reserve system to grow forever. At some point debts cannot be rolled over, as their cash flow value no longer supports their loan balance.
Yes, the people will continue to believe for as long as they can. It serves almost everyone to perpetuate the folly, and not many people would welcome the 'unknown' other side.
The Greek trucker strike is a good example of how at some point actors can act 'irrationally' and perhaps even topple a system that they benefit from. Gas shortages in the middle of the tourist season?
Read up on the vast debt rolls needed across the economy in 2011, 2012, 2013 - banks, governments, companies, homeowners. There will not be enough credit available for everyone to roll their debts over, especially since most are underwater and don't have more equity to put up.
My belief is that the muni crisis will be the trigger that sets everything rolling down hill. I constantly quote it, but states are defaulting right now (it's just not called it) - Illinois owes 2000 vendors $100,000 or more.
http://www.illinoisisbroke.com/vendors.aspx
Eventually these vendors will start closing, laying off workers, etc. We are in a slow-mortion collapse of the economy. Just because people are pretending it isn't happening, doesn't mean it's not happening.
Yeah, Greek truckers are real college-educated aren't they. You're telling me the UNDERCLASS is going to rebel? Utter nonsense. They'll roll and over die first.
And by the way, big impact they've had on Greek policy, haven't they? They really turned things around politically, didn't they?
GET REAL! And if the underclass provokes ANY kind of political rebellion, it will be from the RIGHT. The generals will be back. Purpose? TO ALLOW MELLONESQUE LIQUIDATION TO CONTINUE.
No, you're wrong. College-educated people are not "pretending." They are completely UNAWARE of what is happening. Again, quit averting your gaze from this trash, since they control the political system.
These clowns get up every day, spend, work, spend, vacation, spend, come home, spend. This also happens to be what they think about, and ALL they think about.
And you guys call the oligarchs elitest. They're the most cold-blooded of all. ZEROHEDGIES are the elitists. They think their equations and projections must have political consequences. So did Hitler's opponents.
The Greek truckers are protesting austerity and protected jobs dilution.
In the US the silent protesting (by the college grads) is against spending and QE (which will dilute their wealth) and government employment expansion along with salary increases (which tilts dependency on government)
In addition, many of the College grads who just retired or about to retire are worried themselves sick as the pensions are about to be reduced or even disappear.
Tell me that's not true. (rhetorical)
Mellonesque liquidation continues full force in Greece as everywhere else. NO protest of ANY sort has had ANY effect on it. Get real.
I don't think gold should be looked upon solely as to its profit and loss potential. I own it as a store of wealth. Anything can go up or down, but what would we all rather have...Gold coins or worthless dollars, regardless of the gold's convertability into a fiat currency.
how does an individual investor buy physical gold? Thanks
Apmex.com
I like Canadian Maples - they're a bit smaller, have a nice look to them, and have a smaller premium to spot.
I'd also recommend some silver in the mix, since the denominations are smaller - you could easily trade/barter them. It's like having some pocket change.
Just my opinion...
This is what I've found in my opinion the best way to own physical gold. Find coin shops that sell it for cash under the table, no taxes, and noone knows you own it. Some of the places I deal with charge an additional 25$ on top of the current market price per ounce. Alot of these online dealers are charging you an arm and a leg and you still have to pay the tax in some cases. This is just my opinion, I find it better this way.
I opened an account with Perth Mint in Australia. After that it has always been easy. You can deal over the phone. They hold your gold in storage which they charge you for. From time to time I fly there and collect it and take it away in my hand luggage. I get a piece of paper from Australian customs (which I have never had to use) to cover me in case my hand luggage gets inspected. This option is handy if you don't live in Australia and don't want your own government to have a record of your gold ownership.
I used to get coins which are legal tender from most countries, so there is nothing sinister about having them. Now I find kilobars are best because they have the lowest premiums over spot.
In America, I understand the buying of gold is the easiest in the world. There are any number of dealers and they all charge low premiums. Consider buying overseas if you want to keep your ownership secret from your government.
from the old NYFE floor - to be sung to the tune of "Climb every mountain". Sell every rally..... Buy every dip..Cannonball your losers .. It will make you sick......
But get your gold quick. Administration is planning on making transactions at coin dealers over $500 IRS reportable.
The Swiss Franc is high as so many people are shifting assets out of Euroland.Do people have such short memories over Stress tests,Greek,Portugese and Spanish defaults,etc.Truth is those at the top think its brush it under the carpet and move on.Default will happen and then the Gold which is the insurance policy will be unobtainable.Switzerland,lovely country,makes money out of other peoples misery,won,t see them doing much on principle unless theres a profit in it.
Yes.
- Ned
EURUSD just passed thru the 38.2 fib on the weekly move from 1.51... That is exasperating? My man there at the bank should consider a bit less time with funnymentals and some more time with technicals. Amazing how many people (even at central banks) still trade with emotion. Exasperating to retrace to the 38.2? lol... Dude.........