uexkuell, if you think that Germany's going to sink a ton of money into the rest of the Eurozone to save the fiscally irresponsible, then you don't understand the German political landscape. The EUR does fine during boom times. But it is likely to break up during a major downturn. There has already been talk of splitting the EZ in two, with two different EUR valuations. That's simply a precursor to a failed currency. Going back to the DM would not be suicide for Germany and this has the possibility of turning this into every man for himself in short order. Clambill, the best description of the loan guarantees would be a line of credit. It's available for Greece to draw on (maybe; no pen to paper yet) but what happens when they burn through 45 Billion EUR?
Obviously you're from some place far away from northern Europe. This is not about revenge or trying to "educate" the "fiscally irresponsible". It is also not about saving Greece. It is about saving the monetary union and it's public image. Big politics (and especially monetary policy) is all about: - credibility - giving the impression to have power - giving the impression to be a constant, not a flag in the wind In all these respects abandoning the Euro would be suicide for Germany (as well as for the rest of the Eurozone). It would destroy the relations to the customers (ever cared to notice that Germany is a major export nation?). Not to mention the costs of changing a monetary system. It is not just to change the ⬠sign to DM prints. The costs count into many billions. Handing over some billions to Greece which will come back at some time in the future with interest is much better business.
I've heard numerous times on Bloomberg that people expect the euro to go up short term then go lower longer term. What if you imagine the worst case scenario? What if Greece burns through all the money that's given to them and see no choice but to default? Do they allow Greece to exit the euro? What will happen to the other countries? Will it be like another Asian Crisis? Will it only last several months? How can they emerge from this situation?
Worst case scenario is Greece does a partial default and bond holders lose say 30-40% of their investment. Euro sells off down to 1.15, 1.05 vs the dollar. Greece stays in the Eurozone and a new set of guidelines are made up for handling EU sovereign state defaults, maybe an IMF-style emergency fund is adopted for the future. European and Greek economy recovers thanks to a far more competitively valued currency and lower interest payments and debt load. Bond investors start requiring a risk premium when buying debt from riskier fringe economies (shock horror), which creates an incentive for peripheral countries to run more sound fiscal policy. Crisis abates and the world moves on.
Uexkell, all valid points. It's interesting that Merkel has yet to publicly confirm that she's backing the bailout plan. Here's an article about German sentiment in this matter; take it for what it's worth: http://www.guardian.co.uk/business/feedarticle/9030814 But I think that you're clinging to a single peripheral sentence of one of my previous posts - that I had a feeling that Germany has contingency plans to go back to the DM. OK, strike that. We'll assume that the German government has no crisis plan to back out of the EUR should several of the EZ members ask for similar bailouts to Greece's - which now is rumored to be 90 Billion Euros from EZ members rather than the original 30 Billion, plus 15 Billion IMF. See second paragraph of this article (Pritchard-Evans usually has the details correct): http://www.telegraph.co.uk/finance/...erman-professors-prepare-court-challenge.html I would be surprised if Germany has no contingency plans, as contingency planning is a normal action during a crisis. To put the EUR disintegration issue behind us, I will concede to you that anyone harboring such thoughts of a German contingency plan of going back to the DM are quite absurd; it's still a bit early in the game to openly discuss such things. As for the Greek bonds, the yield has risen over the last two days to the point where they're now higher than last week. Here's an article: http://www.businessweek.com/news/20...-second-day-as-pimco-shuns-debt-correct-.html Note that the Greek 2 year note is now yielding 6.74%, above the 'guaranteed' 5%. That now means that Greece can't issue anything beyond a year in duration and keep the interest at or below 5%, which means the market is calling the EZ's bluff on Greek aid. I've been surprised at the EUR's rise in the last 36 hours in spite of the Greek bond selloff. I really did expect it to drop below 1.35 by Tuesday evening; this is why I'm lousy in the short term. Ghost of Cutten's post hits on a key point in the value of the EUR - that a weaker EUR would help Germany and the rest of the EZ's exports. For that reason, I don't know how vigorously the EZ members will try to assist Greece. To be clear, I am not a big fan of the US dollar. But it's the leper with the most fingers at the moment. (Plagiarized from a European economist; I can't take credit for the leper comparison). I was fortunate enough to start taking shorting positions back in December in the 1.49ish range when I forecast that the PIIGS debacle would drag down the currency. I've sat through a lot of pain and pleasure in that time, occasionally trading in and out of the position when I expected a bounce. I know that you technicians are much more nimble and are able to trade profitably on small currency moves but I am not that good so I put on longer term trades. I really need to develop some technician skills. My apologies to anyone on this forum that has been offended by my posts; I will return to lurking mode if anyone voices an objection.
Yes, agree that you should keep posting. I myself am 85-90% technical and just keep an ear to the news now and then (the big stuff) but admittedly am not that great at analyzing and making detailed sense of it all. I appreciate someone that can.
I appreciate your posts. Of the 37 books on trading I read, I find some of the most useful are Getting Started in Technical Analysis by Jack Schwager and Forex Patterns and Probabilities by Ed Ponsi. If you're rushed for time, you could just read Ed Ponsi's book. I know lots of people have different ideas and opinions on technical analysis. However, I just wanted to add a bit of my own observations here. One is that I with the kinds of methods I'm looking at, choosing short term candlesticks like 15 min or less can lead to too many whipsaws. Right now after testing different ideas for 18 months I'm now at a point where I'd like to look at a daily chart for overal direction, a 4 hour candlestick chart to see if I want to get in then a 30 min candlestick chart to fine tune my entry point.
NiN, Cambist, thanks for the words. I'm a refugee from another financial forum - the owner opted to make it a pay site for 16 hrs/day (5A-9P EDT) and my fear that many of the good posters would leave is starting to come true. As a result, I wandered around the 'net and ended up here; the volume of posts is a bit lighter here but there are plenty of intelligent posters on this board which is important to me. In today's action, Greek bond spreads continued to blow out along the entire yield curve (ie - all maturities) and are a bit above 400 BPS (basis points; 100 is equivalent to ~1% interest rate differential) higher than the German Bund (this is a bad thing), reaching a high of 427 BPS. Last Friday, the spread on the 10 year was ~390 BPS and narrowed considerably on Monday after the bailout was announced but have been widening all week. The contagion has now started to spread to another PIIGS (Portugal, Ireland, Italy, Greece, Spain) as Portugese bond spreads are now starting to widen against the Bund. http://imarketnews.com/node/11856 This is the bond market calling the EZ's (Eurozone) bluff on backing Greek debt. There is also a lot of moral hazard in helping Greece; the rest of the PIIGS now have less incentive to make painful cuts in government spending because they will be bailed out by other EZ members. In the Alanis Morissette 'Isn't It Ironic' department, I've got the following links to articles published Thursday afternoon: http://www.marketwatch.com/story/morgan-stanley-warns-of-euro-zone-chain-reaction-2010-04-15 Quote: "Morgan Stanley /quotes/comstock/13*!ms/quotes/nls/ms (MS 30.78, -0.10, -0.32%) has warned that the Greek debt crisis is setting off a chain of events that may prompt German withdrawal from the euro zone, with grim implications for investors caught off-guard, according The Daily Telegraph on Friday." http://blogs.telegraph.co.uk/financ...greece-dred-scott-and-the-american-civil-war/ Quote: "There is a game of timing here. Will the quartet file the complaint immediately to freeze aid, or will it wait just long enough to allow the first tranche to reach Athens? If the professors wait, they may think they can strike a knock-out blow by arguing that Europeâs monetary union is damaging monetary stability and has therefore become an illegal undertaking in which Germany can no longer participate. Much depends on this point, says Hans Redeker, currency chief at BNP Paribas. If the professors go for the jugular, they may force the Verfassungsgericht to pull the plug on the entire EMU Project. âThis court hearing is going to be very dangerous. It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be a single euro in further financing for the EMU periphery.â He sees a 10pc chance that this ruling will lead to German exit from monetary union." Since no one else posted this here, I have the honor of calling both Morgan Stanley and Ambrose Evans-Pritchard's discussions of Germany departing the EZ as absurd. This week. I've seen too much tinfoil thinking turn into reality over the last three years. At the moment, I'm looking for a good entry point to add to my EUR short into the weekend, as I think that the entire backing of Greek debt by the EZ could melt down by the end of this weekend, leaving only the IMF to step in with 15 Billion Euros. Sovereign nations taking on unsustainable debt reminds me of Wimpy from Popeye. 'I'll gladly pay you next Tuesday for a hamburger today.' The money would be put to better use by throwing it into the fireplace and burning it during the winter - at least the rest of the EZ would get the benefit of a little heat from that money. Loaning additional money to Greece and the rest of the PIIGS is akin to giving more heroin to a junky.
Clambill, thanks. I just don't have the time right now for learning the rule of technical trading - all of my spare time is currently spent on reviewing raw economic data that I use to form opionions based on fundamentals. I constantly recheck the latest economic information to make sure that my forecasts don't need to be readjusted. I'm comfortable with my current strategy of using low levels of leverage and holding positions longer term. I retire from work this fall and may spend a bit of time learning technical analysis once I've gotten in a few rounds of golf.