Linguists within our midst will recognize the word “no” in several languages. I of course headed straight to the internet for clarification. Thus, we have no written in English, Spanish, Finish, Portuguese, Dutch, and German—not necessarily in that order. What sparked this little lesson in “no” today was a casual reading of the Financial Times; it appears the lack of a common political culture may be about to finally catch-up to that little experiment in centralizing control of people’s lives that is often referred to as the single currency. The serfs seem to be rising up against the all powerful politicos. How sweet it is!
We have been telling our clients for some time the fate of the euro rests as much or more now on politics, as it does on economics. But because of the monolithic singularity with which the political elites approach the future of the single currency experiment (SCE for short), the core political will and opposition to this multi-headed beast based in Brussels by the average sovereign citizen residing in Europe. The elites would have us believe there is no such thing as a sovereign citizen; we are all one big happy collective European family; or at least that be their dream. But there are such individuals out there—real rugged independent individualists alive and well in Europe; we know because we receive emails from them when they decide to leave bunkers now and then; seems now many are emerging from their bunkers at the same time and rising to the surface to be heard.
Ms Merkel is hearing their voices. According to the Financial Times, a recent poll in January showed that 68 percent of Germans lacked trust in the euro. Already, some within her own party have taken action to tie her hands on any proposed bailout. Her sovereign citizens seem to be making it quite clear for a political animal like Angela to hear: Feel free to continue to lead the eurozone, but that’s your goal, you won’t be leading Germany much longer.
It is not just Germany, a block seems to be forming among the three rich northern states of Europe—Germany, Netherlands, and Finland. The taxpayers in these countries have had enough and are making that clear. We often think about Germany’s views, but interestingly the Financial Times reported it this way today in a great piece written by Peter Spiegel and Quentin Peel [our emphasis]:
As nervous as Ms Merkel may be, her standing is relatively safe compared with that of her Dutch and Finnish counterparts, whom officials say have occasionally become even more strident than Germany in closed-door negotiations as their political fortunes have waned.
“The Finns and the Dutch have become terrible bedfellows,” says one person involved in the negotiations.
So, the guys that are funding this little experiment are becoming weary.
The Greeks—those left and unable to sail off scot free into the sunset—are in high dudgeon. To use the vernacular—they are really pissed off! Already they are sick of austerity, which looks to be the state of things as far as the eye can see. But they aren’t taking it sitting down, as you well know if you watch the news. Many Greek citizens are refusing to pay the exorbitant increase in fees levied upon them, effectively by the European Union and the IMF.
Soaring fees hit the Greek sovereign citizen just as average income there has plunged by around 20% and inflation has doubled since the recession started, as reported by the Financial Times. The big push not to pay highway tolls is now weaving its way into boycotting rising electricity bills. “Damn you Greeks’ tighten your belts and stop whining,” is the effective response from the Eurozone and IMF. Likely a prescription we all need to heed to a greater or lesser degree no matter where we live. But, that dog won’t hunt in Greece as evidenced by daily violent and powerful protest that show the country is very close to becoming ungovernable. Can you say anarchy? Commitments to contractual obligations and creepy anarchy don’t usually make for good bedfellows.
Ireland…Holy smoke! Is there any better example in history of how badly and rapidly a government (added by financial alchemy) can screw the pooch? Well maybe, if we think of the Darien scheme initiated in the 1690s next door in Scotland; a place where part of my ancestry flowed from. The scheme so weakened the country it allowed the stinking Redcoats (apologies given) to effectively pave it over, crushed the peeps, so taxes could be extracted on the world’s truly precious commodity—scotch.
Given the other part to my gene pool came from Ireland, I have some inkling about how they might feel. My Irish side is what leaks out into these pages each day—fight first and ask questions later. It has gotten me into much trouble over the years, as you can imagine, but as they say: “You can run from my gene pool but you cannot hide.” The average Irish citizen has to be spitting mad and likely searching continuously to find a banker that he can punch in the mouth. I know I would. This isn’t normally the breed that likes to be told what to do by the EU given the scorched earth policy left for them to deal with. Those left are likely regretting that “no” vote that Brussels so insidiously turned into a “yes.” Common culture? Yeah—sure!
[Note: Black Swan Capital will soon be conducting its distillery tour in Scotland and penning our daily tasting notes, sending a bottle of scotch each day to a lucky reader, and thinking about such minor things as economics along the way; if we can clear our heads of the wee drams we might imbibe. If there are any readers in the area, we would be more than happy to organize a small conference to meet you and discuss some of global macro views going forward; let us know. It would be great to meet you.]
Added to this nasty elixir of austerity pain, we wake to the downgrade of Spanish debt this morning. Just yesterday it seemed analysts far and wide were high on Spain as they were taking to ingesting the tough austerity medicine. Maybe so, but does it matter?
This Spain downgrade comes on the heels of Portugal’s effective announcement yesterday it will need a bailout in order to keep the game of musical chairs in play.
Spain 10-year Benchmark Yield:
Portugal 10-year Benchmark Yield:
Greece 10-year Benchmark Yield:
Ireland 10-year Benchmark Yield:
Because of my call on the dollar rallying this year, and the euro getting hit again, many have written to tell me how stupid and idiotic I am. The US is slipping down the rat hole, is the effective nature of their missives. “And by the way Jack, the euro is soaring too in case you didn’t notice.” Well, I did notice. And my clients have noticed and are not happy about that—rightly so.
But, keep in mind, successful investing isn’t a sprint; it is a marathon. Making good money “over time” is what it’s all about; it seems to me. Unfortunately, during that “over time” period one may likely get hammered for a while. But if one stays in the game, continues to do his homework, refocuses to the market orientation, and trades with discipline, it will turn out okay.
I plead guilty to being stupid and idiotic about many things (don’t even ask my wife, she doesn’t have enough time). Long time readers have seen many such examples over the years, unfortunately. But my retort to those that write to criticize my views on the US and dollar (and I must admit most of the feedback I receive is very valid and reasonable and written in such a way; I learn much from that in fact) of late has been this; “Would you rather be in charge of managing the US economy right now or Europe’s or the UK’s or Japan’s? I will take the US today and twice on Sunday given the problems the others face.”
I say that not because the US is in any great shakes. But this is and always will be a relative game—currency investing. And on that basis the US is in relatively better shape on most measures quantitatively and qualitatively, as far as I can see. Thus, the slide down the rat hole of history may be indeed inevitable for the world’s developed nations, if so the US will likely be the last of the competitors I mentioned to disappear.
Now run out and buy all the dollars you can hold! …just kidding on that one. But you may want to go out and buy a few dollars against the euro because we think Milton Friedman was right.