Italy dodges an economic bullet as their Dow Italy Stock Index coils in a continuation triangle to rise or fall depending upon the news January 27, or from the meeting in mid-March signaling the down trend for Europe. Will ECB credit levitate and strain on-ward, or crash and burn like Greece?
“Euro is losing its relationship with riskier assets that underpinned the currency in 2011 as the deepening sovereign debt crisis reduces creditworthiness of even the biggest economies in the region.”
“The 17-nation currency has fallen -8.6% against the dollar since October, while the Standard & Poor’s 500 Index has gained +2.4 percent, and the correlation between the two dropped to 58% from a record 91% in November, according to Bloomberg. The Euro had moved almost in lockstep with investments linked to growth, including stocks and the Australian dollar, since January, 2011.”
“This decoupling is taking place as European Central Bank President Mario Draghi cuts interest rates and promises banks unlimited cash for three years to rein in soaring borrowing costs for governments ranging from Italy to Spain to France, which lost its AAA credit rating last week. The infusion drove the Euro to a 20-month low of $1.2624 last week. Strategists also anticipate more losses as the U.S. economy improves while the Euro zone shrinks, driving international investors away from the region’s assets. At the same time, European officials led by German Chancellor Angela Merkel are taking steps to contain the crisis and sovereign borrowing costs eased last week.”
“The Euro is the worst performer this year among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes, falling -1.7%. Major peers that have appreciated the most against the dollar are Brazil’s real, Mexico’s peso and New Zealand’s dollar, currencies with a traditionally high correlation to U.S. equities and the favorites of speculators seeking riskier bets, according to Bloomberg. “Investors should be short the currency now and we’re concerned that Friday’s mass downgrades of Euro-zone countries by S&P is not fully priced yet,” Mansoor Mohi-uddin, Singapore-based chief foreign-exchange strategist at UBS, said in a January 14 report.”
“The escalating Euro -zone sovereign debt crisis is both raising concerns over the long-run growth outlook for the Euro-zone, sustainability of the currency bloc, and solvency of some members,” Lee Hardman , a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, said in a January 11 e-mail.”
“A growing divergence between Europe and the rest of the world is driving away investors as ECB interest-rate cuts remove one of the Euro’s pillars of support. The currency appreciated as much as +6.6% between January and May, 2011 as Jean-Claude Trichet, who stepped down as head of the ECB in October, raised the central bank’s main rate twice, to 1.5% from 1%.”
“Draghi has undone those increases and foreign holders sold the greatest amount of Euro zone assets in October since February, 2000, according to ECB data released last month. He has signaled more cuts may come, saying at a January 12 press conference in Frankfurt that there are “substantial downside risks” to the economy and policy makers stand “ready to act.” -Catarina Saraiva 1-16-12 Bloomerg.net
Our Forecast Remains Intact. Greece Exits Euro Currency And Euro-land. After the dust settles on that one, then we see Portugal follow; then Italy? Others planning to enter Euro-land will stay out; especially in Eastern Europe.
“Ambrose Evans-Pritchard: 2012 could be the year Germany lets the Euro die. So we enter Year IV of the Long Slump, the cruellest, yet though not the most acute.”
“There will be no Chinese credit explosion this time, no real help from post-bubble India or over-stretched Brazil. It will be a global downturn on all fronts, aborting what remains of recovery even before industrial output in the OECD bloc has regained its pre-Lehman peak.”
“The second wave will hit with youth unemployment already at 45% in Greece and 49% in Spain; and with the US labor participation rate already at depression levels of 64%. We will hear more about Italy’s Red Brigades, Greece’s Sect of Revolutionaries, and America’s militia groups, and how democracies respond. Proto-fascism in Hungary is our warning.”
“China’s surgical soft-landing will slip control, like a Fed tightening in 1929 and 2007, or Japan’s squeeze in 1990. Once construction has run amok, bears will have their way.” – Ambrose Evans-Pritchard International Business Editor The Telegraph 1-2-12 Editor: He is correct Chickens come home to roost in Europe. They will not be alone as it spreads to parts of South America, Asia and finally North America. Key dates coming quickly: The January 27 preliminary meeting in Europe was cancelled. They have to deal with Greece first who will default on an $18 Billion bond payment due on January 20, 2012. An orderly default is best. A disorderly one could have dire consequences spreading messes over southern Europe very quickly. I think it’s orderly.
