A little history lesson from Mike O’Rourke at BTIG:
Throughout 2010, we have repeatedly been astounded by the actions and comments of the German leadership. Once again, Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have made statements leaving us in a state of disbelief. Today Merkel said “We are in an extraordinarily serious situation regarding the situation of the Euro.” In a speech in Parliament, Schaeuble remarked that “our common currency is at risk.” As has been the case all year, this is politicking in order to garner support for Germany’s role in the European bailout. It would be nice if these policymakers could find a way to convey their political point without the scare tactics that risk a currency crisis. The Euro was down nearly 2% versus the Dollar today. Who would think that with all of the Dollar bashing over the past month, the Dollar would be up 7% year to date versus the Euro. The first thing that crossed our minds upon seeing the headlines were the stories of then Treasury Secretary Jim Baker threatening to weaken the Dollar in response to German interest rate hikes in 1987. That episode is often considered among the key events fueling the 1987 crash. By no means should you interpret our parallel to be one of impending gloom. We are just highlighting that when it comes to the financial markets, politicians should say what they mean and mean what they say. Markets have a tendency to test idle warnings and empty threats. Overall, we remain in the bullish camp and while we would like to see some of the macro headline risks dissipate, pullbacks such as this are a buying opportunity for investors.