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By Midyear, Europe 'Can No Longer Live With This Euro'

testosteronepit's picture





 

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

“I’m sitting on cash,” Felix Zulauf said when he was asked in an interview where he was putting his money. With decades of asset management experience under his belt, he’d founded Zulauf Asset Management in Switzerland in 1990. But now he was worried—and has turned negative on just about everything.

In Europe, growth would be weak. In the US, “everyone” was expecting decent growth, but he saw the possibility of a “great disappointment.” Developing nations wouldn’t grow as fast as in recent years. The Chinese were taking their money out of the country. “They have antennas for problems at home,” he said. The markets were expecting the world economy to recover, but he suspected that neither the economy nor corporate earnings would develop as hoped. Once the distance between “wish” and “reality” became apparent, “it could cause a crash.”

Timeframe? This year. Optimism might hang in there for a while; the second quarter would be more problematic. Over time, downdrafts in some markets could reach 20% to 30%. Despite the incessant insistence by Eurozone politicians that the worst was over, he didn’t see “any normalization.” The structural problems were still there, they’ve only been hidden, “drowned temporarily in an ocean of new liquidity.”

“Look at the economic data,” he said. “There is no visible improvement.” As if to document his claim, the Eurozone Purchasing Managers Index was released. It dropped again after three months of upticks that had spawned gobs of hope that “the worst was over.” Business activity has now declined for a year and a half. New orders, a precursor for future activity, fell for the 19th month in a row. While Germany was barely in positive territory, France’s PMI crashed to a low not seen since March 2009 and was on a similar trajectory as in 2008—when it was heading into the trough of the financial crisis!

Sure, the financial markets calmed down, but only because the ECB pulled the “emergency brake” by declaring that it would finance bankrupt states so that the euro would survive. It was a signal for the banks to buy sovereign debt. Borrowing from the ECB at 1%, buying Spanish or Italian debt with yields above 5%, while the ECB took all the risks—”a great business for the banks,” he said. As a consequence, the banks were once again loaded up with sovereign debt. “The problems weren’t solved but kicked down the road,” he said.

Politicians would muddle through. Government debt would continue to rise. But next time something breaks, the pressure would come from citizens, he said. Standards of living have been deteriorating. Many people have lost their jobs. Real wages have declined. “We’ve sent millions into poverty!” People were discontent. And it was conceivable that “someday, they could go on the street and attack these policies.”

But, but, but... hasn’t Chancellor Angela Merkel emphasized that the euro would be important for peace in Europe? “The euro doesn’t create peace,” he said, “but discontent.”

Countries were devaluing their currencies to gain an advantage. This “race to the bottom” could escalate to where governments would impose limits on free trade. The devaluation of the yen would hit other countries. In Germany, it would pressure automakers, machine-tool makers, and others. By midyear, he said, “Europe will reach a point when it can no longer live with this euro.”

It would have to be devalued. France’s President François Hollande was already agitating for it. “And he has to because the French economy is in a catastrophic condition. It’s no longer competitive. France is becoming the second Spain.”

But didn’t the ECB emphasize that the exchange rate was irrelevant for monetary policy? And wasn’t the Bundesbank resisting devaluation?

“The policies of the Bundesbank are unfortunately dead,” he said, and its representatives were only “allowed to bark, not bite.” Monetary policy at the ECB was made by Draghi, “an Italian.” He’d push for the “lira-ization of the euro,” he said, “not because he likes it, but because he has no choice.” It was the only way to keep the euro glued together. “Mrs. Merkel knows that too, but she cannot tell the truth; otherwise citizens would notice what’s going on.”

Given this dreary scenario, what could investors do? Long-term, equities were a good choice, he said, but this wasn’t the moment to buy.

Gold? That it was down from its peak a year and half ago was “normal,” he said. Currently, gold funds were forced to liquidate, which could cause sudden drops, but it also signified “the end of a movement.” He expected the correction to end by this spring. “Long-term, the uptrend is intact,” he said.

Bonds? They had a great run for 30 years but were now “totally overvalued”—in part due to central banks that had bought $10 trillion in debt “with freshly printed money” over the past five years. Debt markets were completely distorted, but central banks would be able to hold the bubble together for “a while longer.” So he admitted, “Last summer, I sold all long-term debt.”

But where the heck was he putting his money now? That’s when he made his sobering remark, “I’m sitting on cash.”

The Fed is growing deposits far faster than banks can deploy them, or than the economy can use them. It is growing them far faster than anybody wants or needs. And now there are “hundreds of billions of dollars of potential fuel unused,” as Bloomberg pointed out. A potential for big problems. Read.... The Fed Is Blowing A Dangerous Bank Deposit Bubble.

 


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Sat, 02/23/2013 - 14:32 | Link to Comment World of Debt
World of Debt's picture

Hilarious music video about the world debt situation:

 

https://www.youtube.com/watch?v=IrHiYxDbnMY

Sat, 02/23/2013 - 07:20 | Link to Comment Volaille de Bresse
Volaille de Bresse's picture

"BWAHAHAHA

instead of doing their job, the EU apparatchiks just made the Apple desktop computer "Mac Pro" illegal. You can't make this shit up, it's too funny."

 

+1 the sole difference betweent the EU and the Soviet empire is... we have no Wall to tear down to free ourselves... 

 


Sat, 02/23/2013 - 10:29 | Link to Comment cifo
cifo's picture

"By Midyear, Europe 'Can No Longer Live With This Euro'"

Didn't we hear this before?

Sat, 02/23/2013 - 11:41 | Link to Comment AnAnonymous
AnAnonymous's picture

Maybe. Could mid year of any year to come though.

And anything that happens, 'americans' will take as solid evidence that they can no longer live with this euro.

Consumption, consumption, consumption. 'American' economics is all consumption.

Sat, 02/23/2013 - 16:04 | Link to Comment orez65
orez65's picture

No, American economics is "alchemy".

Sat, 02/23/2013 - 01:47 | Link to Comment Derezzed
Derezzed's picture

Oh I agree with pit on the end results, but not the timing, I think it will last a little longer, 2 years maybe more ...

Sat, 02/23/2013 - 00:25 | Link to Comment Reptil
Reptil's picture

BWAHAHAHA
instead of doing their job, the EU apparatchiks just made the Apple desktop computer "Mac Pro" illegal. You can't make this shit up, it's too funny.
Apple might just release a modified Mac Pro next fall as the story goes. It created a feeding frenzy, as there are not that many Mac Pro computers available new at this moment.

http://9to5mac.com/2013/01/31/apple-to-discontinue-mac-pro-in-europe-in-...

Who knows? Maybe by then we're all living like cavemen?

Maybe only then, when we've cast down our technological burden, we'll get those magic "food stamps" over here as well.

With a holographic EU logo on it so we know it's good. Strong magic.

Sat, 02/23/2013 - 09:41 | Link to Comment tango
tango's picture

Ready?  The electrical port was not protected (zero incidents) and the fan guard did not meet new specifications.  Glad Apple took them up on it and stopped instead of creating an EU compliant version.  No doubt it worked too well and thus, was "unfair" to others.  I swear, this kind of thinking is quite common today. 

Sat, 02/23/2013 - 04:38 | Link to Comment Marco
Marco's picture

That's a strange definition of just, the regulations were from 2009 ... Apple simply doesn't care about it's workstation business.

Sat, 02/23/2013 - 09:52 | Link to Comment tango
tango's picture

No, it's not that "Apple simple doesn't care about it's [sic] workstation business"  If you'd investigated instead of instantly bashing you'd know that these rules were condemned at the time as utter rubbish.   Unless you think normal folks will force their hand into the fan of an active computer or stick their tongue in an electrical port.  Yet another case of overzealous bureaucrats who have nothing else to do.

Sun, 02/24/2013 - 15:20 | Link to Comment Marco
Marco's picture

If Apple could make as much money on their workstation business as their core business they'd make the effort. Instead the update rate has gone glacial, they're still selling years old designs and they're willing to just let the gap until their new ones hit go uncovered in the EU. Workstations are something they do on the side to not piss off an old customer base and cause bad PR, that in this case they can just let the business slide without causing bad PR for them is the reason they are doing it.

I think people who believe they would do anything out of principle do need to be protected from turning fans.

Fri, 02/22/2013 - 22:49 | Link to Comment steve from virginia
steve from virginia's picture

 

 

 

The obvious is always ignored because the implications are too unpleasant ... walking:

 

@ Zulauf:

 

"Despite the incessant insistence by Eurozone politicians that the worst was over, he didn’t see “any normalization.” The structural problems were still there, they’ve only been hidden, “drowned temporarily in an ocean of new liquidity.”'

 

Drowned temporarily in an ocean of lies is more like it.

 

Europe is being de-carred, they cannot be afforded any more. What is 'growth'? More cars. Why isn't there any more growth? Because more cars amplifies the car-cost problem, the solution is no cars.

 

You see, children ... the fuel supply has been stripped away and so has the credit. Without a constant supply of new credit, nobody can pay their bills ... for all the old credit. There is no way out.

 

Some people complain about the safety net but gutting it only is a temporary reprieve for the precious cars, their days are numbered: car and tyre manufacture, the fuel industry, the highway construction industry, the tract house industry, the big-box retailer industry, the truck-transport industry, the gigantic 80-story concrete penis in the middle of town industry, the military industrial complexes, the finance and insurance industries ... all of the automobile dependencies are bankrupt, a gigantic, worldwide dinosaur that has cut its own head cut off by way of its pointless success ... too stupid to lay down and die.

 

Die it will and very soon, children, very soon ... not before threshing everything in the world to bits, first.

 

 

Sat, 02/23/2013 - 06:22 | Link to Comment Haus-Targaryen
Haus-Targaryen's picture

Die troll, die. 

Sat, 02/23/2013 - 00:14 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Not going to die in your lifetime, genius.    BTW, have you got a tip for us how you plan on shorting "cars"?

Sat, 02/23/2013 - 10:14 | Link to Comment negative rates
negative rates's picture

Tax cuts.

Fri, 02/22/2013 - 22:04 | Link to Comment hannah
hannah's picture

i cant wait for the day that 30minutes before the market open we have a cnbc hack actually tell us the closing numbers ....then they will show us a chart of the day before it has even begun courtesy of the fed.

Fri, 02/22/2013 - 20:25 | Link to Comment disabledvet
disabledvet's picture

The Center (France/Germany) must hold. Any schism and the whole thing heads south IN A HURRY. Gold is obviously already flooding out of Europe and into the USA "for fear of the State" and obviously you don't want to touch any of the debt. I think the meeting with Japanese PM with POTUS is a big deal...the weakness in the Yen is WAY overstated...let us hope and pray if this EU thing looks like a goner that it's dissolution remains "civil." I'm very worried that this "Internet thing" released un regulated is proving to be catastrophic for mankind.

Sat, 02/23/2013 - 16:10 | Link to Comment orez65
orez65's picture

Fuck you on your Internet comment, ass hole!!

The only place that you can get any truth now day is on the Internet.

Regulators are nothing but fucking censors.

Sat, 02/23/2013 - 22:02 | Link to Comment The Heart
The Heart's picture

"The only place that you can get any truth now-(a)-day(s) is on the Internet."

Ya know, that is becoming more and more apparent. For the yanks at home, this would not have ever been seen on the local mind-wash drug Television. It is good to see that finally, those who are more responsible than any are having some of the proper light shined upon them. Very normal to see the beast feed upon itself. Even though there are still many without the name, at least more and more people are seeing who these banksteronians are. Check out the digs these guys live in. Who will be the first to fly a drone over to get some good shots of what is going on in the back yards? Oh, never mind, google earth real time has already been there, and done that.

http://www.dailymail.co.uk/news/article-2283192/Rothschild-versus-Rothsc...

Sat, 02/23/2013 - 06:52 | Link to Comment theprofromdover
theprofromdover's picture

I think a lot of French folks have finally woken up and realised it was all a lie. When the weather warms up, I think they will be out on the streets against Germany's boom 2 decades. -About May, the Parisian boulevards are lovely.

Sat, 02/23/2013 - 06:24 | Link to Comment Haus-Targaryen
Haus-Targaryen's picture

Germany is one of the safer places to store gold at the moment, and you can buy as much of it as you want ... in straight bullion ... completely anonymously.  In fact, in Germany LTCG on Gold are tax free.  Moreover, the US has a history of confiscating Gold, where as Germany (save for WWII) does not. 

Fri, 02/22/2013 - 22:21 | Link to Comment Ghordius
Ghordius's picture

"Gold is obviously already flooding out of Europe and into the USA..."

Obviously? Where does this come from?

Sat, 02/23/2013 - 00:39 | Link to Comment Reptil
Reptil's picture

Eeeehm.. Consulting my crystal ball; I think it's an orchestrated move. A cumulations of a number of processes in different parts of the world.

Then in the ensuing chaos, power will be grabbed, and new magic paper introduced.
Which (in combination with some re-education, and healthy information from the Council) will solve all our problems at one fell swoop.

www.transnationalterrorism.eu/tekst/publications/EU%20Counterradicalizat...

hatchaaaa simsalabim hocus pocus pas *FLASH* your freedom (to do commerce) is gone...

tadaaa

etc.

Fri, 02/22/2013 - 23:26 | Link to Comment Freddie
Freddie's picture

Why would gold come into Obummer's USSA?  Amerika is a shithole now.

Sat, 02/23/2013 - 22:03 | Link to Comment Decimus Lunius ...
Decimus Lunius Luvenalis's picture

Well, Obama sees himself as both a combination of FDR and Lincoln.  Obama thinks he is similar to Lincoln quite simply because Lincoln is considered one of the greatest presidents in American history.  Obama knew he was Lincoln's protege, so to speak, as soon as we won in 2008.  As for FDR, Obama recycled or tried to recycle nearly all of FDR's policies (even his campaign slogans) which is ironic for an ideology that calls itself progressive, but I digress.  The gold will flow to the U.S. because we all know that a president that styles himself after both FDR and Lincoln would never, say, all of a sudden build a giant vault on a major military base to store all of the gold just confiscated from the citizenry or suspend constitutional rights as part of his wartime powers, because it's not like the U.S. is engaged in a perpetual war that ever more focuses on the homeland.  So, foreigners have nothing to fear by sending gold here.

Sat, 02/23/2013 - 22:03 | Link to Comment Decimus Lunius ...
Decimus Lunius Luvenalis's picture

Well, Obama sees himself as both a combination of FDR and Lincoln.  Obama thinks he is similar to Lincoln quite simply because Lincoln is considered one of the greatest presidents in American history.  Obama knew he was Lincoln's protege, so to speak, as soon as we won in 2008.  As for FDR, Obama recycled or tried to recycle nearly all of FDR's policies (even his campaign slogans) which is ironic for an ideology that calls itself progressive, but I digress.  The gold will flow to the U.S. because we all know that a president that styles himself after both FDR and Lincoln would never, say, all of a sudden build a giant vault on a major military base to store all of the gold just confiscated from the citizenry or suspend constitutional rights as part of his wartime powers, because it's not like the U.S. is engaged in a perpetual war that ever more focuses on the homeland.  So, foreigners have nothing to fear by sending gold here.

Sat, 02/23/2013 - 11:46 | Link to Comment AnAnonymous
AnAnonymous's picture

Because that is the ganglord's turf.

When a business of extorting the weak, farming the poor, putting your stuff on the ganglord's turf is the safest place for it.

Especially in these times when the gang lord raids anything outside of his turf, trustees' turf or not.

Sat, 02/23/2013 - 01:57 | Link to Comment AGuy
AGuy's picture

Considering Putin bought 570 Tons of Gold last Quarter, and China has been purchasing US Eagles from the US Mint. Its unlikely Gold in Europe is coming to america. In the case of Germany, Gold is going to leave the US and go to Germany, as Germany is recalling its gold reserves from the NY Fed.

The only think that is coming back to the US is all the US treasuries Central banks bought during the 1990s and 2000s to cover trade deficits, which are turned into dollars which are used to buy gold and other tangible assets.

 

Sat, 02/23/2013 - 20:56 | Link to Comment QQQBall
QQQBall's picture

I doubt China is buying Eagles. More likely they have takeoff agreements with miners.

Sat, 02/23/2013 - 09:32 | Link to Comment tango
tango's picture

Fact Check Alert!!  The 570 tons Russia bought was over 10 years, not a quarter.  A lot of gold but not 40 times as much as implied.   Even doctrinaire central bankers realize that gold is an "asset" to anyone's economy. 

Sat, 02/23/2013 - 11:26 | Link to Comment AGuy
AGuy's picture

Yup, My mistake. Although it appears that most of the gold has been purchased in the last 5 years:

http://au.ibtimes.com/articles/374568/20120817/russia-tops-gold-reserves...

"...purchases over the five year period 2008 to 2012. Russia bought over 500 tonnes of the yellow metal."

Regardless, Gold still nto flowing or staying in America.

Sat, 02/23/2013 - 14:35 | Link to Comment disabledvet
disabledvet's picture

nice thread. "here's to pissing people off again." my "gold from Europe" is an historical claim...nothing more...nothing less either. When FDR seized all gold reserves in the USA in the Depression "the gold kept flooding in from Europe." that priced barely BUDGED even though spending and outright profligacy soared "on the heels of World War II." the President set the price every morning upon wake up...35 bucks an ounce "give or take a dime." i do agree the only factual basis for gold "flooding in from Europe" i have is the price (flat going two years) and now falling (very rare indeed given the macro climate. from whence the fear? and of what type?) this time simply makes the parallels to the (US) Depression seem very obvious to me. Banks were very powerful then here...and they were all always long gold. In the USA "long gold is code for long railroad equities" since it was the railroad companies who owned all the mineral rights on both sides of the tracks...if you had the capital to extract those minerals that is. "Only Northeastern Banks had that kind of money" so call it a "default setting" if you will...but my view is that the folks liquidating their GDX and GLD positions MASSIVELY are large European financial interests that are confronting a collapsed social welfare system and riots in the Streets "as if from nowhere." educated guess i would agree. "surmising" because price declines in gold requires on to revalue ALL assets accordingly when that price is in the DOWNWARD direction. if the price of gold soars then "assets are always appropriately valued" no? (ye olde "my gold is now worth more" rule.")

Fri, 02/22/2013 - 19:50 | Link to Comment secret_sam
secret_sam's picture

I think you're supposed to stuff the cash in your MATTRESS, not your seat-cushions.

Fri, 02/22/2013 - 19:45 | Link to Comment new game
new game's picture

fred, ya taken no prisoners and callin all b.s. b.s

the bastards, every fucking one of em.

Fri, 02/22/2013 - 18:20 | Link to Comment Freddie
Freddie's picture

Monetary policy at the ECB was made by Draghi, “an Italian.”

Draghi is a Goldman man not an Italian.  Berlusconi for all his faults may be an Italian.   Be for your citizens not for the EUSSR and Goldman.

Sat, 02/23/2013 - 06:33 | Link to Comment Edward Fiatski
Edward Fiatski's picture

Goldman always Wins.

THIS SUMMER We Party Like It's 1999!

Sat, 02/23/2013 - 13:21 | Link to Comment Bandit und Buster
Bandit und Buster's picture

"Goldman always Wins"

Seems that way now, but that will change!

Read Obadiah...The almighty has plans for Edomites and Canaanites!

www.synagoguerising.com 

Sat, 02/23/2013 - 13:45 | Link to Comment moonshadow
moonshadow's picture

B und B, that link is Such B-S wow

Fri, 02/22/2013 - 17:46 | Link to Comment Volaille de Bresse
Volaille de Bresse's picture

"The Euro will be dead long before the US dolar. The EU has no army, and army is a very important part in this game. See the latest stories on Niger."

So the very last man standing will be the Yuan... :-)

 

Seriously I thinkt the Eu will join the Jap party next year = it'll be massively devalued to give the Euro economy a breath of fresh air. A 1.10 Euro/USD ratio seems appropriate. 

Sat, 02/23/2013 - 07:06 | Link to Comment Ghordius
Ghordius's picture

As usual: eurozone, the club of 17 nations using the EUR is NOT identical to the 27 strong club called the EU, which is a trading confederation which shares a 30'000 strong "ministry" in Brussels that costs roughly 1% of GDP, mostly spent in the club countries for subsidies (mainly agriculture and infrastructure)

Army? Navy? Well, if you count them up there is a sizable def force there - the question is more about the limited offensive capabilities, particularly in comparison with Uncle Sam's, who spends 50% of the world's military budget - roughly the amount he has to borrow, btw

And yet if you look in Afghanistan you'll find some europeans, as in Mali

But the EUR is still a fancy way to peg 17 national currencies (in a confederation of politically controlled national banks) in a grid. Look at the Danes, they still are pegging to the EUR (through the ERM II)

Ask yourself why - the answer will always go back at least to 1971

Wake me up when the Danes leave their peg - or at least when the Swiss leave their floor

Sat, 02/23/2013 - 09:28 | Link to Comment tango
tango's picture

European defense is an oxymoron.   It is no longer the "best and the brightest" that serve but the outsiders (Russia's army is half Muslim, an ominous portent).  Europe could not even stop an open slaughter within its borders (Bosnia) and every nation has slashed defense to the bone to enable social welfare spending (little good that did - lol).   But chickens do come home to roost. 

Sat, 02/23/2013 - 11:50 | Link to Comment AnAnonymous
AnAnonymous's picture

'Americans' in Europe's offense is an oxymoron.

Defense is not.

But indeed, it is been a long time since 'americans', when they speak of defense, actually speak of offense.

Sat, 02/23/2013 - 00:12 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Nope.   China has some of the worst demographics on the planet.    They will implode spectacularly, hopefully mostly amongst themselves.

Sat, 02/23/2013 - 02:02 | Link to Comment AGuy
AGuy's picture

It probably doesn't matter who goes first. Once one falls, the rest will fall like a house of Cards, much like the Credit bubble created in the US, popped globally.

The real danager is when Currency and Trade war turn into a Hot war. All of the players have nukes. In one day, more people will die then all of the wars of the past combined. All of the major cities will become gravey yards.

 

 

 

Fri, 02/22/2013 - 17:28 | Link to Comment Clowns on Acid
Clowns on Acid's picture

CNBC (Maria) has got over their surpise of Greenspan saying "that the Fed is sopporting the stockj market".

Today Maria just keeps saying , matter of factly "the Fed is suporting the stock market" like it is just another variable in the investing universe.

It is obvious that MSM is slowly but surely, preparing the viewers to accept this as a given. It is the "best" course for them.

Felix ...can do nothing except shake his head, and get left behind. Just like any other "investor" that cannot quite accept that there has been a takeover.

It is now in the open....

Fri, 02/22/2013 - 19:09 | Link to Comment NoDebt
NoDebt's picture

Wall St. is on the dole as surely as a welfare recipient is.  When this party stops (or rather is FORCED to stop, which will be how it happens), lots of people's gooses/geese will be cooked.

This is fantasy land.  Too many people believeing their problems can be solved with central bank pixie dust.  Alchemy, witchcraft, sorcery- we used to believe in those things long ago.  Apparently we still do.

The ships of state are made of iron.  I assure you they can and will sink.  The pumps only buy you time, nothing more.

 

Fri, 02/22/2013 - 18:22 | Link to Comment Freddie
Freddie's picture

Why do people watch TV then complain about being serfs and getting F over?  If you watch TV and Hollywood then you support it.

Sat, 02/23/2013 - 09:23 | Link to Comment tango
tango's picture

I like tv and record programs for when I have time.  Like everything else - food, money, exercise. alcohol - moderation amd choice are crucial.  There is good TV (Dexter, Elementary, Science and History. great miniseries - John Adams and Pillars of the Earth come to mind) and LOTS of trash.

Fri, 02/22/2013 - 21:25 | Link to Comment willwork4food
willwork4food's picture

What?? No South Park? Family Guy?

Commie!

Do NOT follow this link or you will be banned from the site!