Tuesday, June 21, 2011
The euro is toast.
The problems in Greece, Portugal, Spain, Italy, and other countries are about to destroy the European Union (EU). And as the EU breaks apart, the euro will dissolve right along with it.
The euro had a good run. Twelve years of easing global credit helped hide the growing pains of one of the world's youngest currencies. But as the euro enters its 13th year, it's beginning to show all the blemishes and insecurity of a pimply teenager.
The well-intentioned experiment was destined to fail from the start. There were just too many countries with too many governments and too many cultures. There were too many accounting methods, too many differing values, and too few checks and balances.
During good times, the differences didn't matter. Strong economies hid the incompetence of the euro-zone governments.
Now, however, things are different. Citizens are questioning the value of being part of an association that doesn't appear to benefit any of its members.
Think about this...
Last year, German citizens were asked to pony up money to fund the bulk of a Greece bailout package. Germany lent money to Greece with the provision that Greece would take action to bring its budget under control.
Now, one year later, Greece hasn't changed a thing... and, predictably, it needs more money to stave off bankruptcy. The EU is once again asking Germany to pony up the bulk of the funds with the provision Greece will really do something this time.
So the German government keeps paying, and the German people see their hard-earned tax dollars going to benefit strangers in another country – strangers who appear to have a relaxed lifestyle, now at the expense of the German workers.
The EU is trying to force Germany to bail out Greece to keep the union intact.
Don't be surprised to see Germany back out of the European Union.
Meanwhile, over in Greece – they don't want the money. The Greeks are protesting to keep the bailout money out of their country. They would rather default, rather declare bankruptcy and wipe the slate clean, than take on more burdensome debt and be forced to change their standard of living.
The EU is trying to force Greece to take the bailout money to keep the union intact.
Don't be surprised to see Greece back out of the European Union, either.
Then, of course, there's Portugal, Italy, and Spain. All have problems similar to Greece's. All have taken bailout money. And all are on the verge of needing another bailout.
The EU is going to want Germany to fund the bailouts. And the EU is going to force the troubled countries to take the money.
Do you see the pattern here?
In an effort to keep the EU together, the union is forcing nearly all its members to do something none of them wants to do. That seems to be an impossible task. Surely, many countries will see a greater benefit to leaving the EU and operating in their own self interest.
The European Union will dissolve. It'll happen sooner than most people think. And as the EU dissolves, so will the euro.
The euro has been surprisingly strong over the past year. It's up about 15% versus the dollar. That probably has more to do with Ben Bernanke running the dollar printing presses full time than the perceived strength in the euro zone.
That strength will not continue. As the "realization stage" comes to grips with the problems in Europe, the euro is destined to fall, and fall hard.
Similar to betting on higher interest rates in the U.S., betting on a declining euro seems like an excellent trade.
Best regards and good trading,
Things are bad in Europe, but at home in the U.S., things aren't rosy, either. "How the heck are we going to pay for this?" Jeff writes. "The simple answer is... we're not."
Fortunately, he's got a way to take advantage of the weakening Treasury bonds. Read Jeff's two-part essay here: You Owe $534,000 and here: America's Broken Promises Are Giving Us a Once-In-a-Lifetime Opportunity.
Still no sign of end to Europe's debt crisis... National Bank of Greece, Allied Irish, and Bank of Ireland are all down at least 20% in three months.
Crude oil falls to three-month low.
Health care giant UnitedHealth hits fresh 52-week high.