David Zervos, the brilliant Jefferies strategist, comes to the following conclusions, after watching the mess in Europe.I suspect there have been 2 epiphanies for the leaders of EMU in the last 2
1. Some countries will have to leave
2. Eurobonds are the only way to fund
Europe is fast tracking to a narrower political and fiscal union. And with a PhD economist in charge of the ECB (another saltwater MIT man), we should get Bernanke-like cooperation from the ECB during this complicated transition. That means a bigger SMP, and eventually QE when the Eurobonds come into existence. QE will ensure yields stay low and stable for a time so the SWFs and CBs of the world will buy even at negative real yields. What better way to solve the European debt crisis than financial repression from the ECB via the market for Eurobonds.
Get ready for some big time negative real rates in Europe to go along with those big time negative real rates in the US. Its a race to the bottom as nominal GDP and inflation spike to erase decades of foolish debt creation on both sides of the atlantic! Buy real assets. Good luck trading.
We should note that what Zervos believes EU leaders have realised is identical to what he’s believed for some time, as he clarified in a recent interview with BI.