In my last Credit blog post (Article: Credit: The Pressure Is Building...) I stated that we had imminent signs of default in the EU zone and that contagion will be the name of the game. Glance at some of the important credit market charts below:
Greek 1 Yr at over 150%...
...2 Yr at over 75%...
... and 10 Yr at over 25%. But you, I and the market already know all this!
Back in the day Eurozone politicians called hedge fund managers who speculated against the Greek debt through CDS crazy. Looks like the gentlemen who went long Greek CDS at 100 beeps do not look that crazy anymore? 5000 beeps and counting!
Gordon Brown was on Bloomberg earlier. This is what he had to say:
“In 2008, governments could intervene to sort out the problems of banks. In 2011, banks have problems, but so too do governments. The euro area problem is now moving to the centre, the euro cannot survive in its present form, it’s going to have to be reformed dramatically. We are, I think, at an hour to midnight in the way that we look at this issue.””
The Dollar is in demand now as we should already know by my recent article on currencies (Article: Currencies: Is The Dollar Rally Real?). I think Gordon Brown is also advising his best friends to buy the Dollar against the Euro and the Pound.
On the other hand, I am bullish on risk assets, however I am not buying anything yet. We have signs of capitulation in certain places and as every day passes by more signs are shown to all of us. Some commodity companies on my watch list look great. Having said that, I think that no matter what earnings state, no matter how well company revenues are, no matter what sentiment is saying, no matter what technical analysis or breadth readings are showing, no matter what the long term trend is... in my opinion, until the credit markets settle down, we just aren't there yet.
Greece needs to default. Hopefully the politicians do not kick the can down the road again for a few months. If they do, than the risk asset rally will be false. Do not get suckered into it! Having said everything above, please don't think the world is about to end like these investment banks:
Hahahaha! I cannot help but laugh at some of the garbage these guys send to clients on daily basis. It gives Hollywood a run for its money.
"I cannot help but laugh at some of the garbage..."
ReplyDeleteSo you disagree with UBS and CS that the end of the Euro is a possibility?
Yes.
ReplyDeleteI will be buying the Euro when defaults run their course.
Fair enough. I could see arguments both ways (Euro breaks up or eventually gets repaired). But I definitely do not understand why the notion of the Euro breaking up would be considered comical.
ReplyDeleteI'll try and explain:
ReplyDeleteI do not understand how it could even cross the mind of a proper experienced speculator or a historian or an economist that EU is going to break up. This is totally laughable and ludicrous in my mind. I guess many fear mongers, media types, banking experts, financial gurus, gossipers and all the rest of the people who get on TV every week and always get things wrong on constant basis... well they see a huge possibility of the EU break up.
In my view this is almost impossible (nothing in life is completely impossible). The reason I say that is because I tend not to follow what consensus is saying or what the last "news" in the media is, but I try and properly "think things through" on my own.
The way I see is like this: I was lucky to study modern history of the EU as an elective subject in University, and if one has studied on this topic they would very easily come to realise HUGE AMOUNTS OF EFFORT the whole Europe has placed into this project since the fall of the Berlin Wall in 1989.
This has been a three decade project so far, and it is totally ludicrous to think that three states like Greece, Ireland and Portugal, that barley make up 10% of the EU, are going to split the whole Union apart. It is totally laughable, on the expense of Credit Suisse and UBS, that the Union, politicians, bankers, the wealthy and all other "men with power & in charge" are willing to give up on a three decade project due to a small crisis. This is a small crisis, compared to what the United States is going to experience within this decade. The Euro is a much better currency than the US Dollar, that is completely flawed and abused - and in my opinion worthless. The market too is starting to acknowledge this...
I actually cannot believe so many people think it is possible for the EU to break up, just like you do. If you have studied history apart from the EU, say for example the United States, which is also a Union of a similar type, you would have noticed that many states, many cities, many counties or other political bodies went bankrupt many times.
That did not end the United States government, that did not end the United States itself and definitely did not end the United States Dollar. What will happen is the following: eventually Greece will go bust and then the market will test the political will of the Europeans by attacking other countries. We will have a period of panic.
Eventually, the EU will pass the test and the focus will turn to the real matter: US Treasury Bonds and the US Dollar... which will crash within this decade! Credit Suisse, UBS, Goldman Sachs, and all other "exports" will once again be laughed at. That is how I see things - plain and simple!