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Dear ,
Dow UP 277.83, the Euro Saved Again!
At least that is what the market believed on Friday when news came from the latest Euro saving summit that a compromise had been reached. The key question is whether this one will work any better than the previous plans to save the Euro. Let's take a look at the details.
Oh Wait, There Aren't Any
All they agreed to is an idea and a framework. No additional monies were committed. Isn't it amazing how much the market rallied on not much more than an idea and some hope. Here is a link to an article from The Big Picture that I think gives the best analysis of this latest agreement.
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Here are a couple of selections from the story that I found interesting.
The Pavlovian response of financial markets to the European leaders' summit of 28 and 29 June 2012 was remarkable. The frugal communiqué of 322 words fired the "animal spirits" of financial markets, which now believe that the European debt crisis has been "solved". As comedian Robin Williams joked: "reality is just a crutch for people who can't handle drugs."
I thought Pavlovian Response was a great phrase to explain the market's reaction to the announcement. Instant rally, almost before any serious analysis could even be made of the agreement.
This also assumes that the EFSF (which is backed by guarantees from Euro-Zone Members including Spain and Italy) and the ESM (which will require capital contributions totaling Euro 80 billion from all Euro-Zone members) can finance its activities.
Did you catch that? The EFSF, one of the bailout funds, is being guaranteed by among others, Spain and Italy. They are two of the countries being bailed out! How crazy is that? That would be like a home owner who has defaulted on his/her mortgage, going to the bank and cosigning for a new mortgage for himself/herself. "I double dog guarantee you Mr. Banker that this loan will get paid back.". I don't know about you but that doesn't pass the common sense test for me.
Despite progress, European leaders refuse to acknowledge that a portion of the debt of the peripheral nations is unrecoverable. None of steps announced improves the sustainability of the debt levels of the affected countries, their access to markets or cost of borrowing in the medium to long term. Ultimately, it is not possible to solve the problem of excessive indebtedness with more debt or by simply changing the lender.
The term throwing good money after bad comes to mind. Despite the announcement and all of the excitement, nothing has really changed. Sound familiar? Just as in this country where all the too big to fail banks have only gotten bigger and nothing much has changed here either. These are some of the reasons why I continue to be of the opinion that the Euro is ultimately doomed to failure. Here is the final paragraph of the article.
For the moment, investors and the non-German members of the Euro-Zone are celebrating. It would be wise to remember American writer Edgar Howe's observation: "there is nothing so well known as that we should not expect something for nothing - but we all do and call it hope."
Some Great Opportunities
One of our continuing themes has been that in every crisis there is opportunity for those who are prepared. Are there any opportunities here? You bet there are in my opinion. I can think of three right off the top of my head. Would you like to know what they are? Then give me a call and I'd be glad to explain them to you.
Until next week , Protect Your Wealth!
Sincerely,
  
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