G 'n F is on the right track, imo.
Here is what I think:
1. There will be a deal done at the G20 because, well, one must be done or else it is SHTF. The trysts between Markozy are not working, too much dithering. Someone has to play 'adult' and it will be the G20 cracking the whip.
2. Greece will be saved because its failure is a catastrophe for the EU and the US, though part of the deal is that bondholders get fleeced. Too bad. Buffett or Gates can write the checks as the moolah involved in kicking the can again is only $8 bn USD.
3. French and German and Italian banks will be saved via Euro printing.
4. Who will print?
5. The ECB, of course. It is, after all, mostly its problem. The Fed will participate in some sort of way because the moolah involved is huge. The Euros cannot do it themselves as it requires too much of Germany, and Willi Six Stein is rebelling.
5. Thus, Euro will fall, and USD will concurrently rise. Investment implication: short the Euro.
6. But, you say, wait a minute! This is not consistent with the Fed's strategy of devaluing the USD.
7. Not so fast, I say. An influx of euros into USD after the deal might well play into the 'keep interest rates low' strategy which, IMO, is presently faltering on account of China's retribution for the new currency law. Getting devaluing Euros into rising USD might well be the price for US participation in the deal. US interest rates may well go lower if this is what happens.
8. If US interest rates post deal indeed go lower, gold should surge. If not, we might see gold get pounded. Investment implication: Hedge, wait and see what happens. This is about as clear as mud.
9. Don't forget the supercommittee, whose work has to be completed by December, if I recall correctly. It is charged with coming up with cuts to the US budget. Unlikely that a deal will be made, in which case defense and civilian cuts just happen. No matter what further dithering or delay takes place, budget cuts are a certainty, sooner or later. This means that the Treasury's borrowing costs should go down. Investment implication: probably good for gold.
10. But the European banks' problems I think are all related to Greece, so the problems with Italy and France and, eventually Germany, will come back. We will probably be going through the same crisis again, except in a harsher way. Long term investment implication: good for gold, very, very good for gold.
11. Why harsher? As James Carville would say, it's the derivatives, stupid! Until those are fixed, it's crisis, after crisis, after crisis until it well and truly hits the fan. No one wants to grab that bull by the horns but it is clearly driving everything, magnifying every crisis beyond what it should be.
The 13 morons should have listened to Brooksley Born. Their failure to do so is about 75% of the reason why things are the way they are.
12. In the short term, our stock exchanges should do well for a couple of months or so after G20 fixes everything. That is, until the next EZ country starts to become a problem. Then, it is lather, rinse and repeat, except for the fact that it won't be Greece then, but some more significant country and therefore a more significant crisis. Printing will be the only option. Long term investment implication: terrific for gold, not so good for anything else. |
