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Guest Post: Could the Euro Trigger A 2008-Like Crash? Si, Oui, Yes.
Submitted by Charles Hugh Smith from Of Two Minds
Could the Euro Trigger A 2008-Like Crash? Si, Oui, Yes.
If we dispense with all the fancy stuff, we end up with a simple see-saw with the euro and global equities on one end and the much-hated U.S. dollar on the other.
If we scrape away the ever-hopeful headlines predicting a new figurehead lackey or another vote will magically fix Greece, Italy, the euro, Europe's crumbling banks, etc., the global stock markets can be distilled down to one chart. And here it is: a see-saw with the U.S. dollar on one end and the euro and equities on the other.
I know the mind rebels at such simplicity, and so does the entire buy-side Wall Street edifice: if it all boils down to this, then there really isn't much value added by the endless reams of fancy reports and analysis, is there?
But let's presume for a moment that it really is this simple. Where does that leave global stock markets? The answer can be had by glancing at two other charts: one of the euro and one of the dollar.
Now that the cargo-cult chiefs are openly talking about the euro splintering into euro 1 and euro 2 (i.e. business class and steerage), something I proposed as a possible "face-saving" step in the devolution of the euro 18 months ago ( Why the Euro Might Devolve into Euro 1 and Euro 2 March 2, 2010), then the common-sense question is: why is the euro worth 36% more than the dollar? The answer is that it isn't worth 36% more, of course, and for a bit of technical support of that we turn to a simple chart.
There's not much to support Bulls' claims of euro strength here and much to suggest the euro is in a leaky barrel floating helplessly toward Niagara Falls. Classic wedge broken decisively to the downside, check. Uptrend decisively broken, check. RSI declining but not oversold, check. MACD declining and below the neutral line, check. Price below the critical 200-week moving average (MA), check. Price below the equally critical 50-week MA, check.
The last time these conditions occurred (April 2010), the euro cliff-dived from right where it is now around 136 to 120 in a few weeks. Technically, there are numerous reasons to consider this a high-probability scenario and essentially no support for the notion that the euro is about to storm higher.
And as the euro goes, so go equities.
Meanwhile, the chart of the dollar is unsurprisingly the inverse of the euro: it's loaded with bullish bits. RSI rising, check. MACD rising and above the neutral line, check. Classic wedge broken to the upside, check. Downtrend decisively broken, check. Classic A-B-C-D pattern visible, check. Price above the critical 50-week moving average, check.
In another classic move, price kissed the 200-week MA, retraced to support, and is now rising back to break through the resistance offered by the 200-week MA.
Without getting too fancy, the obvious targets for the euro are 120 and parity with the dollar at 100. This could also be seen as reversion to the mean. The targets for the DXY (dollar index) are correspondingly 88-90 and 100-105.
As for what this means for equities, it's a free-for-all limbo dance: how low can you go? The S&P 500, currently around 1,240, could easily limbo down to the psychological 1,000 level, pause to towel off the sweat and then repeat its 2008 swan dive to 666. Or maybe not. The only thing the see-saw tells us for certain is the euro and equities are on one end and the dollar is on the other. If the euro tanks, equities tank, too.
I know, I know, the dollar is doomed, it can't possibly rise, blah blah blah. If you insist on a fundamental reason, then read this: banks are short currency, long assets (Zero Hedge).
And what's holding up the euro again? I'm getting a lot of static in the answer.
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Might want to consider this little tid bit about US being approached on a coup in Pakistan...
http://www.dawn.com/2011/11/10/mullen-denies-receiving-ijazs-letter.html
and where does gold sit on this see saw?
It's the fulcrum
I picture hands on both sides pushing down only to snap the board and allow the fulcrum to float away.. up, up and away!
It's the reference.
i think gold is the reference point ;-)
so aginst all ods, the gold on the ecb balance sheet is the bullish euro factor. its more or less to market (40,22 anyone)
so it could soak up all to easy the bearish bias and then some more. only from balance sheet appreciation
at least i wouldnt be surprised if eur up big time. the euro bearish is no contrarian bet.
should the fed too decide to mark gold to market, all bets are off for all cross pairs.
It's the pivot of the see saw. Basically US Dollar and Equities/Euro can go up and down all day, while the pivot can rise up with no one (aside from central banks, Austrian economists, and the ZH crowd) noticing.
gold is archimedes's finger. thats what scares the fiat nymphomaniacs.
Fiat Nymphos sounds like a great band name.
Fiat Nechros
Plenty of fools out there, however greater fools are getting scarcer by the minute.
Like cancer, the patient is killed inch by inch and the systemic issues are too far along for treatment.
Right now all people are doing is attempting to keep the patient alive even though there is nothing left to save. It is now just an effort in how far they can torture the body before it inevitably coughs it's last breath out and the body liquefies the same moment it dies.
Even then the TPTB will attempt to reanimate the slop that was once known as the EU.
This is nothing but run of the mill chart porn.
Here's a guy who can do real charts--
http://www.ritholtz.com/blog/2011/11/our-supercycle-oscillator-updated/
Interesting. Do his charts take into consideration exponential debt to get us where we are now? How does that affect the supercycle?
I know Soth asia quite well.The above mentioned person is a US intelligence asett.I find it difficult to find the report credible.
too much global stock (liabilities) problems. Everyone's looking for good, safe flows. USD is that conduit. How USD flow is a good broad macro indicator.
Ben will kill it before it hits the high 80s.
The elections depend on it.
That's right, but S&P will hit 1,040 range before he starts to devalue again. Oil and commodities need to cool off before any more printing begins. Don't underestimate impact of US debt debate and potential for govt layoffs as a result.
Agreed.
Perhaps the DXY isnt such a good measure.
My bet is crude <80 and brent < 95, before he goes to town.
It really feels more an more like they are losing control.
The weaker Europe gets, the stronger the $. The only way to keep Europe from blowing up is massive printing = weaker Euro, stronger $. So, Bernake prints like hell trying to weaken....but the public is getting more attuned to his printing press, and what it is doing to the inflation rate. This may not go down well at all with the electorate in 2012.
One thing I do believe is that 2012 will be a water-shed year - for better or for worse.
*ITALIAN 2012 DEBT SALES `NEAR IMPOSSIBLE TASK,' SCHRODERS SAYS
*SCHRODERS FORECASTS RECESSIONS IN WIDER EUROPE, INCLUDING U.K.
*SCHRODERS FORECASTS `SERIOUS RECESSION' FOR EURO REGION IN 2012
*SCHRODERS SAYS ITALIAN DEBT WILL BE DOWNDRAGED IN COMING MONTHS
What will the EU-dictatorship do next? Prohibit free speech? In the name of democracy and zee stabeeletee, of course.
Q-Bath tub..he is leaking
The euro crash will be the signal that the dollar is next. Then it's on like donkey kong, deer in the headlights, rule 48, ZH website crash, you name it. Bitchez.
ZH website crash.........I knew it was going to be bad, but not that bad. Now I am scared.
ZH crashed in August already. Don't you remember? All it takes is the DJIA going up and down 500 points a day for ZH servers to get overloaded and facefail.
404 ECONOMY NOT FOUND
Too funny!!!! +1
Good one, or for the Commodore crowd:
LOAD "economy",8,1
FILE NOT FOUND
This all makes me think of the upside down pyramid. Cold hard cash will have its 15 min before final reality reality with gold.
Bernanke has unlimited ammo to keep the dollar low. In fact, Europe is counting on this.
He will keep the dollar low to keep prices "stable" because he wants (needs) stocks to stay elevated to keep pensions returning.
The scenario is what ZH used to so poigniantly call, "A Race to the Bottom"; a term which was stolen by the Economist and other MSM. Too bad we haven't been using Race to the Bottom as much lately, it still fits.
But, but..the MHFT said it was all bullish going forward...
Yes, there may be an unlimited supply of Bernake Bucks for now, but there is a rising chorus of complaint regarding inflation, money-printing, debt, etc. If Bernake is not careful, he may not last until the elections...in fact, he may be dumped in a PR effort to shore up Obummer's popularity.
Thank you for your post... As per your model which seems correct recently.. Any USD weakness ramps stock... what would happen if ECB starts to print? You would get dollar strenght... but would markets tank? That defies logic... since there's more fiat chasing the same assets... thoughts?
TPTB definitely KNOW that it can. They will do whatever is in their power to print their way out of this mess at taxpayer expense. Taxpayers are more expendable than the TBTF banks.
No you miss the point the printing was to get us INTO the mess...not out of anything.
The printing is over. Next youll face world war, again.
Do you know the board game called Risk? I think it will become popular again.
Poll time, ZHers! Can you pick the alliance members on each side of the next world war? My best guess is that unlike WWI and WWII, die Vereinigten Staaten von Amerika and Deutschland will be on the same side in the next one.
Not sure who the purported combatants will be, but the real war will always be banksters vs humanity.
pods
Excellent analysis pods...with the bankers as proxies (bitches) for the uber wealthy.
Everything else is just political/nationalistic noise.
IMF,ECB,WB,FED,BOE vs Human Species
Battle Ground = World
I think a world civil war could happen, every country revolts from within, oh yeah, thats right, it's already happening. Instead of fighting each other this time we might turn on TPTB and take the fight to the Banksters!! Give em a taste of their own medicine this time.
"This just in George, all the Central banks have been occupied and destroyed by citizens around the world. And Now back to Real Jersey Whores and your regularly scheduled program."
This revolution will not be televised.
It's a Bank run Bitches!
I've said for a long time....US takes Iran....three countries in a row....extra men at the start of the turn, FTW.
All FIAT currencies are equally worthless and there is no reason for the USD to be the weak one all the time. That is why it is going up for a while. That's the game, currencies are trading in a range and they will depreciate and die together.
Agreed. Debt to GDP levels (of the disclosed debts at this point anyway) are similiar in Portugal, Greece, Spain, US, etc. When one's value holder currency is a debt-based one and banks can create capital through fractional reserve lending (ledger created capital), the recipe for purchasing power loss is guanranteed. Unless of course you have close friends in the Central Banks/Governments.
yep, they just take turns ratcheting the currencies value down, yet keep the exchange rates in a range which makes them appear to maintain their values.
Beyond the charts, it seems like the Euro has a long way to come down relative to the dollar. The political structure of the Eurozone is in shambles and they are urgently looking for a way for the ECB to monetize the sovereign debts.
Of course the US equities market is going to tank from this. Simple margin calls aren't enough to handle the deleveraging needed in the equities and commodities market.
I cant understand why Europe is not totaly engulfed in riots and flames...same with the US actually, I dont get it.....unless theyre dumping Lithium and Xanax and Flouride into drinking water supplies like mad.
Sex, alcohol, drugs, entertainment … that’s why.
No one can afford hardly any of that anymore.
Oh yeah they are rioting. Just over the wrong fucking thing. GOD DAMN THE RETARDS - http://www.twirlit.com/2011/11/10/penn-state-riot-2011-video-rallies-getting-voilent-after-joe-paterno-fired/
what an incredible event. these kids are so deluded that they riot to protect a washed up old football coach who covered up for child rape. Until Americans wake up, they will continue to get raped.
Those same students also fight for continued government funded debt to become part of the system. College is only good for getting threesome with drunks whores and access to home-grown.
We need Mr. Banzai to revise the logo for Perv State.
Should change that institution of lower learning name to Pennus State.
Sex is free, between friends !
It cost me a house and a car, not to mention a second wardrobe...
Rioting is expensive. Need jobs for really good riots. Hospital bills, police and firemen overtime, and such.
Good article! Yes nothing more to it all than a plank on a fulcrum with a lot of fingers lifting and pressing down on each side.
Sounds plausible enough to me. Worth a trade.
@ShankysTB: /dx - inverted head and shoulders target 82 -twitgoo.com/4ua2ib
This correlation between the Euro and equities is certainly undeniable. It plays out every day with near 1.0 accuracy. It seems however; to be entirely dependent on the fact that algo. traders have their machines mindlessly slaved to the EUR futures and EURUSD prices. Should that grammatical relationship change, there seems to be no reason why the equities market can't return to trading on its own fundamentals whilst the Euro pursues its rightful price (PPP 1.10 and falling with -GDP).
Why should a Euro be 'worth' 1.40 or 1.10 to a US Lollar?
Pesos and Canadian dollar have wildly swing from worth nothing to a dollar to far exceeding a dollar...yet a Euro is still worth more why? No reason whatsover at all that I can see.
Why is a dollar worth a dollar?
In the Coinage Act of 1792 - A dollar is defined by law as 371.25 grains of fine silver. I can't seem to find where this Act was repealed.
I wonder how much a dollar bought someone in 1792?
i think nowadays we don't have "dollars" as defined in the coinage act. We now have new Federal Reserve Notes.
Yet we still have the pound Sterling, which incidentally won't buy you a pound of sterling anymore either...
The Federal Reserve Act of 1913 gave power over printing our money to the Federal Reserve Bank, that was step one. The United States Gold Reserve Act of January 31, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury. We went back on the gold standard in 1946, at the close of WWII, under the "Bretton Woods System". After that President Richard "I am not a crook" Milhouse Nixon removed the United States from the gold standard (and thethen "Bretton Woods system") once and for all on August 15, 1971. In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for the nation's military expenditures and private investments (read Vietnam War and defense contractors). In the first six months of 1971, assets for $22 billion fled the United States.
The Coinage Act has never been formally repealed. It has been modified, repeatedly. In 1834, 1849, 1857, 1864, 1873, and finally in 1965 - which eliminated silver from our coinage completely.
Actually there was a way you could exchange notes, FRN, USTN, and get a constitutional dollar from the Treasury up until around June of 1968.
Great book on the subject is, Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution.
Look up the legal term "desuetude".
I was actually scared last night thinking that there is a great possibility banks shut down .. the leverage is stupid high. Only the paranoid survive .. growing monster garden next spring and raising chickens for both eggs and meat.
Try to favor junk silver over junk bonds, one will remain valuable.
Gardening is harder than it looks. If you haven't grown a garden on your property I suggest you start small and figure out what works and what doesn't and why. Better to face -plant on a small scale, than have an epic failure and lose all that work and effort.
I was going to go big, but hadn't grown veggies since I was a kid. Found out I had problems with soil and bugs and sun exposure, now correcting those for a bigger garden next year.
dreaming of a greenhouse
Go stong dollar! Morons, sell your gold along with your falling equities! Please give me one more dip on gold before it skyrockets again.
Dream on, Sand Man ! Monedas 2011 Hoard now ! That's an order !
Those graphs give me a severe case of bonerization. I am long USD, not fundamentally of technically, but because nothing trumps EUR for sheer shittiness. 2 flies at one stroke: ECB will keel over, and the FED swaplines will cause muchos painos when they have to start unwinding. Same same with regard to SNB with their idiotic EUR/CHF (but not USD/CHF) peg.
Unleash the fury
...what a long strange dip it's been.
Its bubbles deflating, putting pressure on other bubbles. Stress sloshing back and forth between bubbles. Not the old, familiar business/economic cycles. Hedge accordingly.
may be yes, may be not... derivatives world is not so easy, we need to think like the worst banker thief... do the opposite until the money says BASTA !!!
UNESCO STOPPED WORLD HUMAN PROGRAM BECAUSE NO MORE FINANCEMENT FROM USA, so BRAVO BERNANKE, YOU HAVE SPENT ALL THE MONEY IN YOUR FRIENDS, THE BANKS, AND NOW YOU DON'T HAVE NOTHING TO OFFER. BRAVO BRAVO BRAVO !!!
GOOD FOR CAPITALISM, THE MOST CORRUPT SYSTEM IN THE WORLD....
fuck UNESCO; all these programs do is create more starving 3rd worlders
I think you are confusing the U.N. with sexual intercourse which is, to my understanding a primary source of population increase.
For Old World malaise, the Eur-o
Was once thought to be the cure - o
But it's now transpiring
The Euro's expiring
Leaving them all much more poor-o
I think Bureau was the rhyming word you were looking for, but I don't have time right now to "solve for it." ;)
Since the USDX index is heavily weighted by the Euro (60% if I rember correctly) then your really just showing two charts of the same thing,
with the vertical axis inverted. When the euro goes down the USDX goes up etc...
A much more interesting thing would be both the USD and EUR charted against something like the CCI or gold.
I'm really supprized no one else called BS on this whole comparative article.
you wish it will...get ready for a squeeze to 1.39...good luck with those negative articles, keep them coming
"Could the Euro Trigger A 2008-Like Crash? Si, Oui, Yes."
You forgot "Fuck yeah!"
Jimmy Rodgers just said on CNN that Gold is not in a "Bubble" ! He's buying Gold and "rural farmland".....well, I guess that's the only kind ? Monedas 2011 Grow them vegies....my little bitches !
Jim is a rare honest billionaire.
Big respect to him.
Full agreement here.
There is great wisdom in his comments.
If you read between the lines, he's projecting out... once the collapse happens, you're going to see trade patterns disrupted (globalization level) and see the necessity of producing local food. This is the reason for buying high grade land. I'm not taking about hippie commune stuff, but good land that can grow produce locally. Gold... we'll that's the currency of this century (sorry Ben - I disagree).
Not really. Smack dab in the middle of downtown Montgomery, Alabama is a farm and cattle ranch. There is also semi-rural farmland - ie. farmland encroached upon by suburbs, but not sold to developers. Rural farmland is well away from tract developments, suburbs, cities, etc. Like reasonable far from the Suburbanites and their SUVs.
Only when Americans start to get smart and take the red, white, and blue dildo being jammed up their ass everyday (also called inflation), will we start to improve our lives as a whole and root the evil people out.
But that's not gonna happen between now and 2013. May the Timewave begin!
Abraz: Bullshit. Who sent you here, boy? Did that chickenshit asshole Raphael send you, boy?
Chance the Gardener: No. Mr. Thomas Franklin told me I must leave the old man's house. He's dead, you know.
Abraz: Dead, my ass. You tell that asshole, if he got somethin' to tell me, to get his ass down here himself! You got that, boy?
For those who have watched the movie Titanic(think global economy)....when the ship splits the first half goes right to the bottom(euro) and the second part floats high for a while(US Dollar)...but ultimately the pressure and gravity take over te the second part of the ship also sinks.
But everybody gets off the ship and they have a swell party every year to celebrate their good fortune in the face of adversity right? I think its called the G20 or something. Haven't seen the movie, heard it makes your manparts drop off.
What are the rescue boats?
The big risk about betting on the usd up against the euro lies with the possibility that the weak countries exit the euro. The euro would then become in essence the new DM and would explode agaisnt the USD.
Already happened on Oct 4th.40% decline from May.
The equity markets in the west were protected. Check out the eastern markets, commodities, debt.