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By Midyear, Europe 'Can No Longer Live With This Euro'
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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The .gov is giving you a free lunch. Move slowly in line and dont push!
The euro is doomed. I fattened my position at 1.37 to fatten my wallet.
Singapore may be the best currency for holding value.
Singapore is just a large, family-owned company. Its workforce is about the same size as Foxconn's. The $ing is more a stock than a currency.
Like a company, barriers to entry are the key to its survival, and with China moving up the added-value chain, everything Singapore does is in China's sights. Just as China's earlier move into textiles and low value added goods tore into other SEAsian nations' competitiveness, its move into medium value added tech will decimate Singapore. Once those $40-60K per year jobs are lost, whither Singapore property?
The new gambling facilities are not going to make Singapore a tourist destination. Too sterile. Macau is more "fun", and even if Singapore makes a go of it, Malaysia will replicate it but offer more party time.
Then there's the increasingly low cost production of Japan as the yen falls.....
Singapore has had a good run. Time to downgrade to a sell.
Open sea lanes? That's thanks to the USA. Medicare/Medicaid/SS and Obamacare will eat the military budget of the USA, and local agressors will eat Singapore, so don't invest long term.
I'll tell 'ya what "ate the budget" of the US military: 51 F-35 "flying shitstacks" at $8 billion per. All grounded as of today.
eye-opener from FelixZ compliments of WolfR. Zulauf is one of the most consistently credible wealth managers I've seen (except maybe John Templeton), on ALL asset fronts globally.
He's sitting on cash? Then even Z. hasn't a clue as to the scale of coming Sturm.
The Euro will be forced to inflate......a bit.....
In the end it will still be there when the dollar is gone, the victim of decades of abuse ( or 'use' in the terminology of Central Bankers).
Read much history ? Fascinating stuff.
95% of Europe is a socialist state. Socialism only lasts until it runs out of other people money to finance it, and Europe is out of other people money. Money is leaving Europe (aka, Greece, Spain. France, etc). Germany has printed up new Deutsche Marks. Once one currency fails goes the rest will follow quickly.
Newsflash: 'americanism' runs well until you run out of things to distribute. As it happened before when the US, the mecca of 'AMericanism' on Earth, ran out of indian land to hand out.
Somehow, it is better to run out of money because it does not forcefully imply what 'americanism'trajectory end implies.
Chicom "trajectory" clear enough: human-organ harvesting and puppy-dog-eating. Soon followed by roadside squat-and-dump.
Wait a minute ... What about German business Confidence?
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.
"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. "
Europe is part of the empire. The US will "juice" Europe, as needed, but will not destroy it. The Euro helps the empire juice Europe, so it stays.
That is the point.
Squeezing but not choking. One key rule when you run a business of extorting the weak, farming the poor.
The other day, someone posted here at ZH one thing that differentiates the Euro from all other currencies; namely, that it was not the fiction of a single country. In the context of that thread, the observation seemed to suggest that that one difference might result in greater longevity of the currency, irrespective of some EU members being no more responsible than Zimbabwe, the United States, or Japan. Personally, I'm not sure, but it is a thought.
It's better to have a currency that's a fiction of one country than one where caretaker countries include PIIGS.
Well, obviously, that would depend on that "one country." Could you, for example, imagine a currency issued by/controlled/etc. by a country the likes of California (assuming, arguendo, that California was a country)?
Which was, I believe, the point being made by the original ZeroHedger I cited in my original post.
Europe has more gold than the USA, too, but I suspect the previous poster was correct. At the end of the day, the "hardness" of your currency is based on the number of men with guns you have on your payroll.
Note that "hardness" is almost completely independent of the relative trading value.
Armies depend on supply chain and infrastructures and these depend on pay; if currency collapses, who will pay the suppliers and maintain the infrastructure?
About guns, Portugal has one of the strictest gun laws even by European standards - e.g.: anything above 6.35 is considered "war caliber" and an absolute no-no to civilians (even Police only had 7.65, till recently); nothing slightly military, as foldable buttocks, pistol grips, more than 3 shots/shotgun, hollow point/expandable/jacketed ammo, sights, suppressors, scopes, etc., etc., carrying licenses are 6 month termed and case-by-case, with background psycho eval., etc.), yet, there's 1.4 mil legal guns out of an estimated 3 mil total, for a population of just 10.5 mil.
"At the end of the day, the "hardness" of your currency is based on the number of men with guns you have on your payroll."
Until that "pay" loses credibility. (cf. the last days of the Roman empire)
Then the men with the guns turn inward to take control over their pay, and the empire.
We already have one currency without a country (bitcoins), why not another? Somehow.... I still doubt it. As goes Europe, so goes the Euro. And I think they're in even deeper weeds than we are.
We already have many - people actually trade in gold, etc., in many parts of the world. Bitcoin depends on the economy being functional, which means other currencies too, if not, no one will be there to maintain it's infrastructure.
Will Angie Baby and Belusconi kiss and make up or will our Latin Hero remember that -
Revenge is a dish best served cold
Things are not looking good for Angie
Angie Baby, you're a special lady
Living in a world of make-believe
-Bowie
BUNGA BUNGA INDEED
With no loving in our souls and no money in our coats
You can't say were satisfied
But Angie, Angie, you can't say we never tried
- Jagger
Berlusconi
Bunga bunga
Beautiful women
Break-up of the euro
Bring it on !
In my experience, it's much easier to hook up, than it is to breakup. bring on the lies the cheating the deception the fighting, and then it gets ugly.
Bs Believer
The Euro is not going anywhere.
I've lived my whole life without the Euro....trust me.....it can be done.
Time for the next hairbrained idea I say.
I lived for 20 Years in Europe without the Euro, and 5 years with. I wouldn't miss it.