Thursday, March 25, 2010

Quote of the Week on Greece's Financial Future; And Thoughts on the Euro and USD is carrying a quote that I believe provides a cogent prediction of Greece's future in Merkel Sets Greek Aid Terms, Sees IMF-EU Tandem as Last Resort. To wit:

“The German strategy for the next couple of months is very simple: provide just enough positive rhetoric that investors continue to purchase Greek bonds,” said Peter Zeihan, an analyst at Stratfor, a geopolitical risk consultancy in Austin, Texas. “On the flip side, they want to make sure via rhetoric that there’s just enough doubt that the markets demand a much higher spread than the Greeks are hoping for. The Germans want to make very sure that the Greeks are punished.”

Sound a bit like World War II at the end. Yawohl?

David Kotok's Cumberland Advisors has been predicting for a few months that the Euro will hold but would show further weakness but would then become a "buy" vs. the U. S. dollar. So far that prediction has been looking - well- prescient.

The idea that the USD would strengthen because little Portugal is downgraded with a governmental deficit of about 9% of GDP, when U. S. deficits are worse, is odd.

The "DXY" tide may be with the USD, but that is a narrow index. The more relevant, broader index of the value of the dollar in the real world is the Trade Weighted Exchange Index. This chart shows essentially a stable dollar lately. The rally in the DXY that may have persuaded some to reprice gold downward is a fake-out. The current financial crisis began in America. The idea that the extend and pretend solution here in the financial community ends with triumph because some small countries in Europe tried to play our game of massive deficit finance without access to their own national printing press strikes me as naive.

The Bushbama policy of socializing the financial losses cannot be good for the USD. Right now sentiment is being whipped up against the Eurozone countries. Sitting here, we are being tipped off by various media statements that the U. K. is next up to be attacked by speculators. I am not so sure. The next attackee, should there be one, could be right here. Just as the Germans thought that the attack onto the mainland was coming elsewhere, this talk could be misdirection. A good buying opportunity in the Euro may be coming relatively soon. If so, one would suspecct that gold prices would move up in USD terms as well.

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