Friday, December 9, 2011

Is It Crunch Time on the Euro?

One of the classic high pressure sales techniques is to create a deadline (it may be real, but is often artificial) in which the decision must take place. If you have ever sat through a sales presentation for vacation property, or bought a car, or some similar experience, you've probably heard something like "I can only offer you this deal today" or "I can't guarantee you this price later." The idea is to put the person(s) you are trying to sell to into a panic, so they react to your overtures, rather than carefully considering options. This is the basic idea behind Rahn Emanuel's statement of never letting a serious crises go to waste. That is, if you have a crises (real or imaginary), people will panic and agree to things that they would normally have never considered.

It's clear that there is a serious problem in Europe with public debt and the bond markets. However, is tighter integration of the European Union really the answer? Isn't integration what brought about this mess in the first place? So, when I read articles like the one below, I think of the person selling the time-share condominium, telling everyone that this is a great deal, a great investment, but they have to sign the paper now.

From The Guardian, "Save the Euro in 10 Days or See the EU Disintegrate, Ministers are Warned."
Europe's leaders are faced with a stark deadline of 10 days to save the euro or face the disintegration of the European Union itself.

The warning from Olli Rehn, EU economic and monetary affairs commissioner, came after central banks intervened to prevent a complete freezing-over of the west's financial sector because of the politicians' continued failure to resolve the sovereign debt crisis.

EU finance ministers were told bluntly that, with eurozone unemployment at 16.3m or 10.3% – the highest level since the single currency was introduced – an unchecked debt and banking crisis would push Europe into a deep slump and drag the rest of the world with it.

Herman Van Rompuy, the European Council president, charged with preparing yet another make-or-break EU summit next week, said: "The trouble has become systemic. We are witnessing a fully blown confidence crisis."

The eurozone's three most prominent leaders – Nicolas Sarkozy, Angela Merkel and Mario Monti – are due to set out over the next five days how they envisage Europe's political class regaining supremacy over volatile but dominant financial markets – and restoring confidence among panicky investors.
On Thursday night the French president will set out his case for a tight fiscal union in a speech in Toulon and the German chancellor will follow suit a day later with her basic plans for a "stability union".
 I would be remiss if I didn't link to ZeroHedge's take on this.
At this point we have to say that we find it supremely ironic that a man warning against the futility of linear forecasts does just that for 4 pages, and all based on the flawed premise that returning [to] the system that actually worked, would be tantamount to the apocalypse. Yet as Hatheway says, let's hope that "Europe's politicians agree"... although agree with what is not quite clear - to fund the existence of an obvious fiscal and monetary experimental failure at the expense of trillions more in diluted or outright confiscated funds, just so the continent's (and world's) bankers, who outside of writing trite essays have no utility in the real world, get another massive outlier of a bonus? That actually sounds about right.

As for us, we will bet on the fact that as in every historical event in the past 20 centuries, the powder keg that is Europe, with its tens of religions, hundreds of mutually exclusive cultures, and millennia of hatred, almost without fail took the decision that led to massive game theory fail, and an outcome that resulted in bloodshed. Which is why the only take home message for us here is to do precisely what Hatheway warns to do as a euro breakup Plan Z: buy gold, spam and guns.

Everything else we leave to the only market makers left in town - the world's central banks.

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