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.

The Big Story Last Week – You Missed It

Unlikely to have been mentioned on your local T.V last week, the “real big deal”  had little to do with the “circus in Washington” as, quietly behind the scenes The European Central Bank (ECB) and The Peoples Bank Of China (PBC) signed China’s second largest “currency swap agreement” for a wopping 350 billion Chinese Yuan.

In an unpresedented move The European Central Bank said: “The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets.

In doing so, the parties involved avoid swings in exchange rates. They can also be considerably less reliant on the U.S Dollar for bilateral trade and business deals.

China’s central bank has now signed currency swap deals amounting to some 2.2 trillion yuan with 22 countries and regions, with its continued efforts to internationalize the Yuan and rival the U.S Dollar as the world’s reserve currency.

What do “I” think this deal suggests with respect to the long-term future sustainability of USD, now with Janet Yellen a “shoe in” for continued money printing? Continued money printing???

What do “you think” I think?

Wow. Now EU Zone looking for options moving forward.

Filter The News – Find What Matters

You people have been reading here long enough to know – I am a fundamental trader at heart. My success – rooted in my general interests in the global economy (not some little piddly lil stock market) and my ability to discern “WTF is going on” at any given time. Filtering the news plays a big part.

Day in and day out, we are inundated with more headlines and news flashes than we know what to do with – not to mention the fact that much of this news is conflicting, bias, or outright nonsense. What’s a trader to do when faced with such a barrage of misleading and conflicting information? You need to find the story – “behind the story”.

Take Cyprus for example. Most of you likely hadn’t heard “jack squat” of this tiny little country until a few short days ago. It’s GDP is ant sized, and its influence on the global stage – a speck.

Did you consider it’s relationship with Russia? Did you consider the implications of an EU country being supported and even “bailed out” by a sovereign country outside the EU Zone? A country with considerable interests in the massive offshore gas reserves of Cyprus, a country with direct ties with not only China – but also Iran? – likely not.

The real story here, is the same ol story of “east vs west” – not of EU Zone meltdown (although this is currently in progress as well) – and as the news would have many racing to short EUR/USD – I’d be  more inclined to take the other side of that trade.

previous article: “Long EUR/USD At 1.3170 – Watch Me”

We’ll see how things unfold here this evening as the Cyprus deal hits its deadline. I’m certainly in no rush to touch EUR as I generally stay away from this POS all together. EUR/USD traders need to keep in mind – it’s a forex broker’s dream, with promise of low spreads, easy trending characteristics etc….as every newbie on the block takes a crack at it.

EU Zone Catalyst – USD Saves Face

It’s been my belief for some time now, that the eventual turn in markets will be sparked by news out of the EU. With Greece forgotten, Spain in the headlines only briefly, but now Italy getting some attention – it has become increasingly clear to me that things in the EU continue to deteriorate. The unemployment numbers out of all three of these countries are truly staggering….coupled with banking systems on the brink of collapse.

With the “fear machine” in full swing there in the Unites States – it makes even more sense to me, that risk coming out of Europe will be an easy “scape goat” for the rampid printing and spending coming out of Washington – pinning blame overseas  and further justifying the cause.

As I understand it – The Unites States goes bust on March 27th (please correct me if I’m wrong) as the debt ceiling will yet again be breached – short of some type of “deal” out of Washington. This has gone past “hilarious” as even the American people are starting to figure it out. What perfect timing for a big “news flash” out of Europe – “EU Zone Threatens Recovery” or “Global Risk Appetite Wains On EU Fears”.

Regardless – all things considered we are getting much, much closer to the turn (mid March as previously suggested), and as the “media machines” start spinning their stories ( as to best keep U.S.A lookin good! ) we can add this to the growing list of things to consider.

I say – “EU Zone Catalyst and US Saves Face”

The Euro Just Makes Sense – No!

The euro is the second largest international reserve currency as well as the second most traded currency in the world after the United States dollar.Regardless of the poor fundamentals and ongoing crisis in Europe, these two important facts cannot be denied – and one has to consider that by way of “default” – any suggestion of “dollar weakness” must also consider the opposite – EUR strength.

For many this doesn’t make much sense.In that the majority of us, see the EU Zone crisis as being much worse than that of the U.S – and that if anything the Euro should be plummeting and the dollar rising. It doesn’t work that way. By simple way of “who’s printing press runs faster” – in the current environment of massive central bank intervention – it stands to reason that (in attempt to bring down the cost of their debt) the U.S will continue to devalue the dollar at all costs – resulting in a higher Euro.

Take it for what it is, and hopefully find a way to profit from it. Come to terms with the fact that “these days” a whole lot of things don’t make sense.


A Euro Buy – Not For The Weakhearted

I’ve been going on and on about the continued weakness in Europe, and how I feel that it will most certainly come to “bite us in the ass” again, and again in the coming year. Spain’s issues are much more serious than the current market action reflects – and the ECB has been doing a lot of talking with very little action. Yes bond yields are down across the board and for the time being it “appears” that things have steadied / leveled off however – bubbling there underneath the surface is a complete and total financial disaster. I guess….. for those who believe that now ” endless printing” (so far yet to be seen) by the ECB will magically paper over the holes – fair enough, as this seems to be the current “accepted course of action”.

But make no mistake  – the problems in Europe are far from over. Now…that being said ” lets go buy some Euro’s”!

In currency markets  – there are many instances when the “fundamentals” do not come close to lining up with the “technicals” – but short term trade set ups do ideed exist. I generally approach these trades with smaller position size, and pre-determined stops – in order to set my emotions aside, and just allow the trade to work. Another small suggestion would be to place orders “well above” the current price action, and let the trade come to you.