Posts Tagged The Euro

Here is the least two paragraphs of their leader:
In her memoirs, Mrs Merkel might well say that Mr Cameron was to blame if it came to this. But she would have helped. In the past she resisted the idea of regular euro-zone summits precisely so as to ensure that the British, Poles and Swedes had seats at the table. By giving way now, she may soothe her voters’ current anxieties about the euro, but the future price could be large. If the euro zone moves to greater fiscal and economic-policy harmonisation, it may make the entire club less congenial to liberals—and less appealing even to those in Britain (including Mr Cameron) who want to stay in.

The European project has long had at its heart a tension between an economic liberalism that favours openness to the world and an economic nationalism that prefers a fortress. The Economist has always been on the first side of that argument; so, usually, has Mrs Merkel. As Europe’s most powerful politician, she should make clear that this week’s euro-only meeting is a one-off emergency summit rather than the start of something much more permanent—and more damaging.

http://www.economist.com/node/18332786?story_id=18332786

Now that European governments are all doing the responsible thing by adhering to draconian austerity measures, the markets are falling today on fears that all this austerity will hurt the economy. Monday they´ll probably happy again and grateful for the austerity. It seems the theme of markets for months now has been “choppy”. That means we have to use the volatility to our advantage.  A lot of this talk about European disintegration is staged to intimidate independent centers of power such as unions into submission.  There are still a lot of democratic socialist heads of state.  The nanny state is over but that means many interests will have to be steamrolled.  That just happened in Spain and Portugal and with lightening speed. There is no turning back for Europe and statements like this one from Roman Prodi “You cannot have a monetary policy without coordination in fiscal and economic policy, because otherwise you will have problems.” represent the drive to greater fiscal union.  I believe that is exactly what will happen.  Europe will enter greater fiscal union while the weaker members will be whipped into shape in order to restore the brand of the Euro as a unit of monetary stability.   I´ll be closely watching the Euro though and the debate as well as the implementation of the package. I tend to love assets that have intrinsic value when they are humiliated and I tend to be skeptical when assets however valuable are in a state of hubris. The Euro is the world´s second most important currency and represents 20% of global reserves. Yet, the lack of confidence recently really has been striking. Again, let´s focus on the fundamentals.

The Euro can take of itself. We don´t need to worry about it. This is a perfect example of the news making a bigger crisis out of some brinksmanship. David Marsh just wrote an interesting article with the following bullet points and CR Capital agrees. We are not affirming that the Euro is going to bounce back to 1.50 vs USD but it will not collapse. Marsh says:  There has been a great deal of gloom about Europe since the Greek debt crisis began. This has diverted attention from good news about the European economy. The clouds over Greece have been obscuring some fundamentally positive developments favouring European financial markets.

1. The euro has been falling rapidly against the dollar because of Greek debt worries – an enormous boost to export-orientated companies across Europe, especially in Germany and the Netherlands but also in hard-pressed peripheral states. The euro’s fall against the renminbi and other dollar-pegged Asian currencies also has a useful side-effect, indirectly helping the campaign of the US Congress for an overall appreciation of the Chinese currency.

2. At last, the euro area has had a crisis – after 10 years of waiting for one to happen. This is just what is needed to galvanise government leaders in countries such as Greece into action to correct disastrous policy shortcomings. Europe always responds best when it is in a tight spot. It is certainly in one now.

3. Germany is basically in charge of Europe. Other countries may not like it, but this underpins the future solidity of the euro and lowers the risk that the Greek imbroglio will turn into a catastrophe. However, Berlin does need to pay attention to its policy presentation skills. The German government’s inability to consult the Bundesbank over its recent recommendations for a “European Monetary Fund” has been somewhat alarming.

4. Emerging economies that are large buyers of European capital goods are recovering more rapidly than expected. This is good news for manufacturing leaders across Europe’s industrial heartlands. Over time, Asia and other developing regions will switch to much greater domestic consumption. There will be less eastern capital market fodder for debt-hungry western governments. But European companies exporting products ranging from escargots to excavators will have a field day.

5. The European Central Bank is highly unlikely to raise interest rates in the near future. A continuation of easy money will be good for equities.

6. The sense of impending doom surrounding Greece has acted as a useful reminder to other European governments of the dangers of Greek-style profligacy. This portends downward pressure on wages and government spending across Europe – great news for the corporate sector.

7. There have been some signs of a pick-up in consumption in Germany, which in Europe acts as a smaller version of China, with bloated savings, a large current account surplus, an ageing population and inadequate domestic demand. That may herald a more balanced European economy.

8. Disputes between Germany and France over running European policies may be less frequent in future. France is pleased that the German government has indicated it may help fund a Greek bail-out, while Germany is pleased that France is backing German-style budgetary and monetary stringency. That consensus may eventually turn out to be an illusion – but it suits nearly everyone for now and may hold for a while.

9. The increasing gap in economic growth between Europe and Asia is starting to make an impression on the public consciousness in the Old Continent. There is now much higher awareness that Europe needs a decisive strategy in areas such as research and development and education to rebuild economic prowess. European companies with strengths in science, technology and engineering can thus expect a more benevolent policy-making environment in the coming years.

10. Germany seems likely to secure the presidency of the European Central Bank next year for Axel Weber, currently head of the Bundesbank – Berlin’s prize for signing a modest number of cheques to help some errant members of the euro club balance their books. With a German at the ECB helm for an eight-year term, Germany will remain a full-hearted member of the single currency at least until 2019 – giving Europe a 10-year-stretch of Bundesbank-style discipline and predictability, from which investors and consumers in Europe will surely benefit.

Investors, the Euro is a staple of our currency diversification strategy for cash positions.  We protect the value of your future buying power by hedging currencies against eachother.  If the hysteria gets any worse then consider it a buying opportunity. The Euro isn´t going anywhere and it´ll be just fine.

www.crinvestmentadvisors.com

Currencies used to swing a few percentage points per year and now even the most stable hard currencies have wild gyrations. A lot of clients wonder why it is so important to not only hold various hard currencies by have the stomach to buy them when they go down against others. Rememeber, currency is a mechanism to store value that is waiting to be invested in equity. We do not recommend currency speculation. The goal is not get stuck holding the unlucky currency of the month when the value is ready to be invested. The big bank research departments generally state that the natural trading range for the Euro should be between 1.35 -1.45 Euro for the dollar. But it has been a surprisingly volatile currency as the chart below shows. Nevertheless, the Euro should be one of the alternative (to USD) mechanisms to store value.

Up and Down But Get Used To It

www.crinvestmentadvisors.com