Courtesy of Leon Russell:
I’M UP ON THE TIGHTROPE,ONE SIDES HATE AND ONE IS HOPE
IT’S A CIRCUS GAME WITH YOU AND ME
Rumor has it Nicholas Sarkozy was heard singing these lyrics to Angela Merkel
. The political situation in Europe is a circus as the media reports on so many rumors, which results in news that’s unfit to read. The eyes of the markets are focused on the outcome of the EU SUMMIT
on Friday and prior to that the ECB
will announce its interest rate intentions on Thursday. Now it may well happen that the ECB
announces no change and Mario Draghi waits until the EU
politicians deliver on their promises. Only then will the ECB
president provide the rate cut that is well justified by the stress on short-term rates in the European banking system. So many banks are parking their money at the ECB
because they are afraid of lending their money to other banks whom they don’t seem to trust. If the ECB
dramatically lowered its rate, it may force some of that money out into the EURIBOR
Today Tim Geithner was in Germany
pleading with the Europeans to get ahead of their problems. This time it wasn’t the brazen U.S. Treasury Secretary but rather a much more humble and businesslike posture that Mr. Geithner showed. The last time he was in Europe castigating the EUROCRATS
for their inaction, the reaction toward the U.S. Treasury Secretary was a terse rejection of his advice. Mr. Geithner has realized that the U.S. is not in the position to demand action since its economic performance is nothing to imitate. The new Geithner showed was softer and self-effacing. How will the Europeans react and will they deliver the type of program that gets ahead of the crisis rather than always chasing after another solution?
*** The other day, Arthur, a regular NOTES FROM UNDERGROUND reader, asked an interesting question: How will we know when the entire EU and EURO experiment is over? It is important to look for the signs that may lead investors to know that the experiment needs to be reconsidered. IF GERMANY OR FRANCE WERE TO ANNOUNCE THAT THEY WERE GOING TO HOLD A REFERENDUM ON ANY CONCEPT OF TREATY CHANGE OR FISCAL COMPACT, IT WOULD SIGNIFY THAT WHOEVER WAS IN POWER WAS SEARCHING FOR A VETO FROM THE POPULAR WILL. IT MUST BE REMEMBERED THAT THE GOOD BAVARIAN BURGHERS HAVE NEVER VOTED ON THE EU, EURO AND CERTAINLY NOT A FISCAL UNION. PRESIDENT SARKOZY AND CHANCELLOR MERKEL WERE FURIOUS WHEN PAPANDREOU EVEN SUGGESTED THAT GREECE GO TO REFERENDUM ON THE AUSTERITY PACKAGE.
IF ANGELA MERKEL PROPOSED A GERMAN REFERENDUM IT WOULD BE GERMANY’S TICKET OUT. TO MAKE THIS ARGUMENT EVEN STRONGER, IN TOMORROW’S FINANCIAL TIMES THERE IS AN ARTICLE TITLED, “FAST TRACK ‘FISCAL COMPACT’ DRAWN UP.” IT DISCUSSES HOW THE 17 NATIONS CAN EXPEDITE THE CREATION OF A SERIOUS FISCAL UNION WITH SEVERE AND ENFORCEABLE GUIDELINES.
The article quotes Herman Von Rompuy, President of the European Council, that the 17 Eurozone governments can agree to a “FISCAL COMPACT WITHOUT HOLDING NATIONAL REFERENDUM OR RATIFYING IN NATIONAL PARLIAMENTS.” There you have it: Taxation and austerity without representation. They’re all up on a TIGHTROPE OF POLITICAL HOPE AND ECONOMIC INSTABILITY. Let’s see how the market accepts the balancing act.
***Relatively quiet day in the currencies as the AUSSIES cut the rate by 25 basis points as expected and the Bank of Canada held rates at 1%. The Canada gained ground against all the major currencies as it seems that the strength of the Canadian banking system and its rich natural resource base is giving the Canadians a haven status. With the Swiss keeping investors at bay and the YEN suffering some DEBT issues, the market is looking for alternatives. The CANADA fits the bill because its interest rates are 1% and its banks are not suffering the burden of excess leverage.
Just something to keep our eyes on to see if this develops into a year-end trend. Nothing definitive yet but check the support levels on the CANADIAN CROSSES for possible non-DOLLAR opportunities. The BOC DID AS EXPECTED AND YET THE CURRENCY STRENGTHENED;ALWAYS SOMETHING TO WATCH.
Tags: Angela Merkel, Aussies, BOC, Canada, Canadian crosses, ECB, EU, EU Summit, Euribor, Eurocrats, France, Germany, Herman Von Rompuy, Mario Draghi, Nicholas Sarkozy, RBA, referendum, Timothy Geithner, Yen