The above, of course, is EURUSD.
People should be scared as this is not the currency of a Banana Republic and it is *not* being attacked from outside. The currency is falling from within and this will be very difficult to stop. What we are witnessing is a crisis of confidence from *within* the Eurozone.
Rational people are pulling money out of weak banks and shifting to stronger ones. Similarly people are selling questionable bonds to buy stronger paper. Who’s taking the other side?The lender and buyer of last resort is apparently the ECB which means that debt liquidation/monetization looking like a certainty.
But this doesn’t occur in a vacuum. Europe, possessing lots of quick-thinking and history-studying people, is seeing it’s own inhabitants front-run the ECB by selling Euros and buying gold. This creates a vicious cycle that will be extremely difficult to stop and can go to levels vastly beyond what the mainstream is talking about.
The tricky thing about crisis of confidences is how they can get out of hand very quickly. If all of Europe starts to run, we can see the Euro go to 10 cents. Of course it won’t get there with a European Union intact – stronger countries will be forced to pull out to protect the lifestyles and purchasing powers of their inhabitants.
One thing is for certain, there are some banks already broken in Europe and we haven’t heard anything about it and no one is discussing it. So likely more surprises ahead.
Anyway, my 3 warnings here turned out to be rather timely… and I still don’t see much change. In addition to the debacle of the Euro, the Volcano is back, liquidity has disappeared while the market behaves like a rigged slot machine, and banks are being investigated for various dubious acts during the last excessive lending period.
This is the time to only own things that you are comfortable not selling for a few years – as the market could very well indeed shut down for all purposes.
Do not add risk needlessly in this environment in my opinion. Deflation is back. Use cash to pay down any debts as deflation should continue and any excess should be used only to buy low cost producers on the bid (or below). Low bids are likely to be hit in the coming weeks.
Try not to lose money.
Arthur O’Keefe, São Paulo Value
http://www.spvalue.com
