|Sunday, 17 February 2008||
“Those ever ingenious New York money boys grabbed more than their share of Greenspan free cash slicing and dicing billions several times for humongous fees birthing a yard-full of banker genetic mutants like CDO’s, and other mongrel derivatives, which should have been stillborn. This is a Burt Reynolds ‘Deliverance’ Financial Re-run nightmare. These creatures might endure in banks’ back offices for decades.” – Traderrog
The economies of Spain, Portugal and Italy are smaller and vulnerable to export sales and international credit disruptions. We hope they can hang on for a normal, negative recession but are expecting something much worse. The resources are fading fast with no growth and no economic engine of merit to pull them forward. Housing in the region was grossly over-built and the building continues to this day based upon months ago commitments.
Southern Europe is often referred to ClubMed for it’s southern weather drawing Europeans to warmer, extended vacations. Housing was largely over-built in this region as prices sky-rocketed with easy money for homebuilders and buyers alike. Now, sales have skidded, inventories are rising and the area’s economy is grinding to a halt. For the fall of 2008, economic conditions might be worse and severely tested. Our point in showing these charts and explaining the problems is they are pointing toward two major events:
1. Europe has been unfairly hit by nasty derivative paper from the USA while it was weaker due to overbuilt housing. These markets and conditions are hurting all of Europe with Germany holding most everyone else up. The load is too heavy and could cause certain member nations to begin running old currencies in parallel with the regional Euro currency. This would weaken and sell the Euro and might eliminate it entirely over time.
2. These events could severely test the strength and resolve of the entire Euroland European Union. We think the test will become too difficult for all the members and will precipitate a crack-up or, dissolution of the entire EU. They are squeezed in the same credit crunch vise as in the USA; caught between trying to raise rates to contain inflation but unable to as they must compete with cheap money in America. We think this is going to get very ugly and create a host of “Beggar Thy Neighbor” government economic policies. Germany might get tired of carrying most of the load for her neighbors. The first hint could be the open use of the old German Mark along with the Euro, trading them together as daily choices in Germany.
We have addressed these important issues as it appears on the time cycles, Europe will face in it’s first major test roughly one year ahead of the United States. This does not mean the U.S. will escape but its turn in the recession-potential depression barrel just arrives a few months after Europe’s. History repeats and this timing sequence was quite similar to the 1927-1929′s crash prelude.
Keep your fingers crossed and control risk. Buy and trade in gold, silver and their various investment vehicles. Currency trading should be outstanding in 2008-2009 as the various nations work to manage the market craziness we see just ahead. – Traderrog
By Roger Wiegand