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Patch up the hole below the waterline and full steam ahead.

Tuesday March 27th 2012

 
Tuesday, 27th March 2012
 
Patch up the hole below the waterline and full steam ahead.
 
Has the buying bug settled and started to feast before the dreaded "mid May" slumber takes hold?  In Europe, equities are higher for a 3rd day with Royal Bank of Scotland up by 5.6% on reports that the UK government are set to sell part of the stake to a Gulf SWF. Great, let them have as much as they want!
 
Have you watched "Titanic" on Sunday evenings...quite watchable even though it is predictable in the outcome. Hands up who believes the EZ is a similar exercise...although here the good ship EURO has dodged a few fatal iceberg embraces, but below the water line the patches and quick fixes are mounting up...eventually currency fatigue will set in. it is not a case of if...just when
 
We find the on going gumbo pot of opinion and advice in the EZ as fascinating as ever it was when Greece kept us awake at night.  Ahead of the Min Fin meeting in Copenhagen at the end of the week we see the ECB President, Mario Draghi suggesting that  EZ governments should continue to take “...decisive measures...”  hurrah...that will surely stit them into action.
 
After the ECB injected over EUR1Tn (USD1.3Tn) into the banking system since December is it signalling that it will not offer up further side door loans to European governments?
 
“...No single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal ...The current stabilization should not make us pause in our responses. ...”
 
This has to be read as a stark warning that after the Greek PSI and the ECB LTRO programme no one should assume that all is well. It is far from well and a paper to be released shortly from Spotlight will show the situation in Spain is extremely fragile and the 4th economic power of the EZ may soon be in need of financial assistance.
 
Is Germany guilty of back sliding or just open pragmatism? Throughout 2011, Chancellor Merkel insisted that Germany would not sanction the parallel operation of the temporary and permanent rescue funds. Well guess who just changed her tune! Allowing the EFSF and ESM to work concurrently to make more money available will take the total crisis backstop to EUR692Bn.
 
All this talk is fine at keeping the pressses busy, but we all know that when push comes to shove, if the EZ shows a further stretching of the fault lines the ECB will ride in to provide yet another short term rescue. It is staggering how anyone continues to take this currency seriously...but then isn't that the story of the great game...we have to be engaged as the consequences of fully accepting the awful truth are simply unplatable, too expensive and dangerous to contemplate. ne could turn the table and say is it not the same in the USA.
 
Actually no it is not. There we are seeing a steady swell of improving economic data, and the financial system is in far better shape than in in the EZ. the Fed is able to act with a vast array of tools and is not afraid to openly use them as against create side door conduits to faciliate illegal ECB lending to EZ sovereigns.  At Spotlight we will take US Dollars over Euro's everytime.
 
 
Steve
 
Stephen Pope
Managing Partner ~ Spotlight Ideas

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