We won’t be fooled again
Within the past month, we’ve seen 2 false rallies based on false optimism based on false EU solutions, once after the Spain bank rescue, once after the EU Summit “break-through” last Friday.
There are more EU meetings scheduled this week, with more potential for upside “surprises” given the already low expectations.
Don’t get fooled by another false rally based on optimism from another alleged EU crisis solution. The EU is in terminal decline unless the following conditions are fixed.
Last week there was yet another market rally following the EU summit. It has now faded, just like the rally mere weeks before on false euphoria on the Spain bank deal. Last week I wrote that the rally was based on unjustified optimism in depth in PRIOR WEEK: 17 REASONS TO FADE THE EU SUMMIT EUPHORIA RALLY.
Here’s the very summarized version of what’s holding back the EU that all investors need to burn into their brains to avoid being fooled by similar Euro-obfuscation.
HERE ARE THE BASIC PROBLEMS – PIN THESE TO YOUR WALL.
Unless something happens to change these, the EU crisis is only getting worse.
1. Germany & other funding nations not going to risk their credit ratings and economies for EU.
2. EU nations not ready to cede sovereignty needed to give funding nations assurance they’d be repaid and that the crisis won’t reoccur.
This fundamental conflict is the reason the summits and agreements can never reach the level of detail on funding nor on how to achieve comprehensive solution that markets insist on seeing, one that guarantees banking system and prevents markets from moving on to another nation for speculative attack and new default/contagion risk.
This fundamental conflict between points 1 and 2 is what keeps EU agreements piecemeal, too little, too late, and doomed to failure.
3. Even if they somehow overcome 1 and 2 really fast (unlikely), they don’t have the years needed to organise US of Europe before get hit with sovereign default and contagion risk from Spain or Italy, even if the first default is Greece.
That’s it. All the rest is, in the words of Rabbi Hillel, just commentary.
At minimum, the EU needs to stabilise the situation for a number of years, possible a decade or more, just to organise the US of Europe. We see no sign of that happening.
That means our default positions remain the same:
Short the EURUSD and most other risk assets as rallies based on optimism about the EU crisis lose momentum.
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