The Stress and Strain of a Bailout Euro down, Dollar up

So the “euro area member states will take determined and coordinated action if needed to safeguard stability in the euro area as a whole.” That’s no surprise. The larger countries have the ability to save Greece and the euro, but do they have the ability or will to save the PIIGS and the euro? Who is next? It is humorous that the communiqué included the comment “The Greek government has not requested any financial support.” Most of us are unaware of what goes on behind the photo ops and the carefully scripted press releases.

Without any details, this vote of support sounds hollow. Germany and France may temporarily calm world concerns about Greece and the PIIGS. However, the play has just begun. We will probably see varying degrees of civil unrest in Greece with the EU demanding stiff restraint. Then we will see political unrest in some EU countries. They have problems enough without having to bailout another country with such self inflicted wounds. And the strains that will inevitably occur between EU nations will be kept behind closed doors. If not, the euro will take another hit. More bailouts, which may not be avoidable, will transfer more risk from the PIIGS to the EU and will further damage the euro. Foreign exchange traders will take every opportunity to profit from the resulting loss of credibility. So while there are not a lot of good reasons to buy the dollar, there are some good reasons to sell the euro. Will it reach parity with the US dollar?

And if commodity prices show some stability here, especially oil, watch the Canadian dollar. Canada holds huge oil and gas reserves and other resources: potash, metals, diamonds and grains. It has a strong banking system, a strong housing market and a more financially sound government.

The Trend Is Set: Dollar Up, Commodities Down

It appears the market has set a new direction. Over the past few weeks stocks are down. The January effect? Bond prices are up. The dollar continues to rally against most currencies. Commodity prices are declining. These trends should not be ignored because they presage what is in store for the next few months.


China is withdrawing liquidity, which the west cannot afford to do. Yet China has been the one big economy responsible for rising commodity prices. Recent events in Europe reduce the Euro’s attractiveness as a reserve currency.


The strengthening US dollar will harm the US balance of trade and thus the economy. Was this not Obama’s great hope, increasing US exports? As the “peasants revolt” the US fiscal stimulus will have to be slowly withdrawn. That leaves monetary stimulus. Even with Bernanke’s jawboning, higher administered rates are a long way off.

Greece and Europe: A Deck of Cards About to Fold

The plight of Greece is an embarrassment to the EU. Dare the “Big Boys” France and Germany admit that monetary union is a failure? Certainly if Greece still had the drachma the country would have seen a frequently devalued currency over the past year. That somewhat automatic mechanism would have brought high inflation to the population but at some point would have boosted exports and squeezed imports. Unfortunately, the currency mechanism has been severely muted because Greece is only 3% of Euro zone GDP. Probably the best answer to this problem is IMF assistance. But that makes France and Germany look like deadbeats as well.

And even those countries outside the monetary union should be concerned with a Greek or worse yet, a PIIGS default. I pondered the question recently as to who purchased that latest Greek bond issue. What financial institutions outside of Greece own other Greek bond obligations? Yes, of course, there are numerous non-Greek banks that are owed money. According to an article in today’s London Telegraph, the “UK banks are exposed to these countries” (the PIIGS) “to the tune of 16 per cent of gross domestic product.”

What is even more concerning is that not only do French banks have a 30 % GDP exposure to the PIIGS, but that Irish banks have a 34% exposure and Portuguese banks have a 24% exposure. Can we expect the PIIGS to bail out their own banks?.. not very likely

Think Again About Commodities Investments!

 National Post - Andrea Bell

http://network.nationalpost.com/np/blogs/fpposted/archive/2010/02/09/think-again-about-commodities-investments.aspx

Barack Obama, a One Term President

Quoting Charles Krauthammer, “don’t the Democrats see that clinging to this agenda will march them over a cliff?”...and the current president is leading the way.

It is surprising to see a president who appeared to be connected to the “average worker” now seemingly out of touch. The priorities of the American people have changed. This disconnect will be his downfall.

It could be inexperience on Obama’s part or it could be his advisors. But if he is unable to push his agenda through with a majority in Congress, how will he be able to succeed after the mid-term elections? The makeup of Congress is going to move against him and he will ultimately be seen as the president who was all talk and little action.

The Great Peasant Revolt of 2010

National Post Editor - Charles Krauthammer


http://network.nationalpost.com/np/blogs/fullcomment/archive/2010/02/09/charles-krauthammer-the-great-peasant-revolt-of-2010.aspx

Three Major Currencies: Dollar, Euro & Gold

by Jim Sinclair
Commodity Online

http://www.commodityonline.com/news/Three-major-currencies-dollar-euro-and-gold-25504-3-1.html

Europe Could Face Years-Long Debt Grind

by Elena Becatoros and Carlo Piovano
Report on Business - Economy
http://www.theglobeandmail.com/report-on-business/economy/europe-could-face-years-long-debt-grind/article1460310/

Recovery Tetters as Debt Threat Spreads - Barrie McKenna Report on Business

http://www.theglobeandmail.com/report-on-business/economy/recovery-teeters-as-debt-threat-spreads/article1458282/

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