EU Zone Trouble – More QE On Deck

With all the high-flying stocks out there, and the endless promotion of “recovery in the U.S”, it gets harder and harder every day – to believe anything less. The media machines are in full swing, and the general census ( I believe something like 74% of analysts / newsletter writers ) suggest that the sun is shining, the water is warm – common everyone! It’s safe! Jump on in!

You know – I bet the majority of people “actually believe” that “miraculously” – the troubles in the EU Zone have all magically vanished as well! I’ve heard the floating heads on CNBC as well CNN state this as fact. Josh Brown ( a well-known floating head on CNBC ) looked me square in the eye the other day and stated that “the recession in the EU Zone was over”.

Some facts borrowed from Graham Summers:

1) The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).

2) The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).

3) Over a quarter of the ECB’s balance sheet is PIIGS (Portugal, Italy , Ireland and Greece ) debt which the ECB will dump any and all losses from onto national Central Banks.

So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

The troubles in the EU are far from over, only masked during this “latest attempt” to ensure confidence in a system that is hanging precariously near the edge.

Keep in mind Spain’s currently unemployement rate is 25%!

The European Central Bank is currently considering ( and will soon likely implement ) a QE program of it’s own with bond buying and the works, similar to that of Japan and the U.S

This, coupled with “almost guaranteed” additional stimulus from the Bank of Japan has this currency war shifting gears moving forward, and leaves absolutely NO ROOM for tightening / tapering.

I will continue to complete ignore the media, as with the example sighted above……they are “paid” to keep the puppet show going.

9 Responses

  1. Danny Uxto November 18, 2013 / 9:19 am

    So what do you think long term of Euro? I am buying a house in Spain now, still wondering whether to pay cash at today’s rate or get a mortgage so I am not so exposed to Euros (my rental income will exceed mortgage)

    • Forex Kong November 18, 2013 / 9:28 am

      Hey Danny – buying a house in Spain? – nice.

      I’ve spent considerable time along the coast up from Gilbraltar to Malaga – hot man! hot!

      I hate to say it but……with the EURO and the USD being the two most widely held reserves on Earth – the “dime” range between 1.28 and 1.38 could likely keep on “forever”. Now with the ECB getting into the QE game we can’t really expect “a massive rise” as we may have with the US demolishing it’s currency at break neck speed.

      If its GBP to EUR ( as so many Brits own / purchase property in Spain ) you’d have to imagine EUR moving lower – as GBP’s fundamentals are “looking up” – if that can be said for any country right now.

      Hope it helps – I’d be curious to learn more of your situation / endevours!

  2. Danny Uxto November 18, 2013 / 9:55 am

    Buying in the balearics. It hasn’t been hit from the downturn so much and if you buy in the right area there is a lack of good rentals (I know as the villa I stayed at last year booked out within weeks of being released for next year), It is GBP/EUR i’m looking at. I don’t like the idea of buying now and in a couple of years time losing 20% on FX. So considering a FX forward to hedge that risk. I would think that the GBP is as much garbage as the ECB, I thought compared to GDP UK was printing more than anyone.
    I think the recovery in UK is fine for another 2 years until the elections, the govt will do anything they can to prop up house prices (no govt has ever lost an election when house prices are rising). They are now guaranteeing 20% of property purchases so everyone can get 95% mortgages again. I don’t think the UK is really doing well in my opinion, is all confidence fuelled off house prices

    • Forex Kong November 18, 2013 / 10:35 am

      Very nice – beautiful.

      Ya timing a purchase, with respect to the FX trade is always tough as….waiting and you may see prices go higher or vs versa with the exchange rate going against you etc…

      I see the EUR losing ground to GBP looking out longer term.

      No one is doing well, and these days choosing a currency to get “bullish on” is attempting to choose the “best” of the “worst”, as “devaluation” is the current trend across the board.

  3. ezyfx November 18, 2013 / 10:36 am

    Yes the ECB wants to start a QE program, however I don’t believe they can as yet.

    I read somewhere last week that they have to alter the ECB constitution if they want to start printing excess money. Without looking it up, I believe the constitution forbids printing excess money (as in a QE program).

    Good luck convincing the Germans on that one!!

    • Forex Kong November 18, 2013 / 10:44 am

      Something will have to give – and I doubt it will be the Germans either!

      But……they are talking:

      this from “somewhere on the net”:

      Germany wants each nation to be responsible for its own banks.

      The EU finance ministers modified the wording of a statement on how they’ll deal with shortfalls after the European Central Bank’s asset-quality review and stress tests. The final wording recognizes the German parliament’s right to veto any direct aid from the region’s common bailout fund.

      However Germany has not been able to agree to the new wording because Angela Merkel’s Christian Union bloc and the Social Democrats (SPD) are still in negotiations to form Germany’s next government.

      Myself….I considered many many months ago…that it’s likely the EU Zone “still may be the catalyst” for some serious meltdown here moving forward. They’ll have to get something banged out.

      • ezyfx November 18, 2013 / 11:09 am

        The problem the ECB has is that their bailout fund is not a bottomless pit like QE is.

      • JSkogs November 18, 2013 / 11:25 am

        Yes, Kong. With crazy high unemployment in the Eurozone and unequal credit issues between countries and massive debt the EU is a time bomb… You have to admit its natural to think as follows “wow we have a major problem”….market tanks….we think we have a solution to this massive problem…optimism kicks in markets rally…..then reality kicks in and we probably tank again.. As you know you have back up many many years and think of how long it will take to fix these issue. Potentially decades…..this shit ain’t over….not even close.

        Not sure if anybody cares but I go to regularly to read his essays and postings. They are not always an easy read but as everyone knows he is very very sharp. I have provided a link to one of his interviews that might be worth reading for some.

  4. JSkogs November 18, 2013 / 11:30 am

    Also related to your previous statement, the last major correction was due to the Euroknobs a couple years back in August I think. A chart I’m sure will provide proof. Just don’t have access to one right now.

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