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Quotable – On Greek debt

Our Demagogue of the Year Award goes to Mr. Warren Buffet

“The demagogue is one who preaches doctrines he knows to be untrue to men he knows to be idiots.”

                           H. L. Mencken

Heck, there were so many worthy entries this year it was so hard to choose. But Mr. Buffet trumped the pack with for his zealous defense of derivatives and those that have misused them so well to produce profits for so few—Goldman Sachs. Another masterly performance was given by the Dr. of Duplicity at his annual meeting of Kool-Aide drinking sycophants. Jim Jones would be proud.

At one time not too long ago our Master of the Market deemed derivatives dangerous and destructive, hurting the little guy and playing no proper role in our financial system. But now that Berkshire has learned how dangerously profitable derivatives can be, our hero has changed his tune. Word on the street is he urged and another asset he controls—Nebraska Senator Ben Nelson (Mr. Obama you may remember purchased an interest in that asset earlier this year)—to slip in a little special deal for Berkshire in the new banking bill, hoping to stave off congressional requirements for more collateral needed from derivative devotees—which incidentally if passed in its current form might nip Berkshire more cash to cover the company’s $63 billion derivative exposure; thus lowering the effective return on dangerous derivatives profit producers demonstrably.

The beauty of it all is why Mr. Buffet takes away this year’s prized Demagogue award hands down: Mr. B is able to maintain his folksy down to earth man on the street persona in the midst of all his dealing and duplicity. Really is great stuff. I think it’s well past time Mr. Blankfein get Mr. Buffets’ PR man on the horn.

FX Trading – “Good” news bad price action: Par or bust clearly in play

We had a couple of clients contact us on Friday with concerns that euro might surge on any deal to save Greece. We had to agree with them: Yes, that is exactly what we might see. But we also said we don’t want to lose the position because the deal, if there was one, wasn’t going to change things longer term. The fact is this is a band aid on a gaping wound gushing tainted blood across the body of the European Monetary Union, threatening to infect the entire European banking system. Was that dramatic enough?

But what was achieved by thrusting taxpayer money of other countries into the mix (that is what the IMF bounty is made of) really is only a band aid fix. Spain and Portugal loom…a long hot summer of discontent across the Eurozone of Austerity awaits. And Germany’s parliament still has to take a long hard look at this deal and the very long strings attached.

It is an understatement to say the credibility in Eurozone leaders and finance ministers has been damaged. What this crisis has shown is why jawboning in the midst of real structural flaws only prolongs the inevitable. The EMU was structurally flawed from day one, despite the masturbatory celebrations by government planners of left stripes across Brussels. A quick summary of recent events:

  1. 1. Market realization Greece is in trouble, pushing yield spreads higher (thus a realization that all this time Greece, Italy, Ireland, Portugal, and Spain should have never been able to borrow such massive amounts of money near German interest rate levels)
  2. Finance Ministers assure us Greece can handle this problem alone, but their friends are there to help if needed; which they won’t be once this speculative attacks by nasty capitalists subside.
  3. Well, maybe Greece debt is more than it can handle; this is a problem the Eurozone can effectively deal with—we won’t let our friend default.
  4. Well, maybe there is a little more debt exposure than we fist realized, so we are going to call in taxpayers outside the zone (IMF) to help us save our good friend Greece. There is no danger whatsoever of contagion. The euro is rock solid.
  5. We’re thinking 60 billion euro will be more than enough to put Greece on the path to enlightenment.
  6. Ooops, did we say 60 billion, we meant 110 billion euro! Sorry!

Thus, showing us in real time one of the major flaws facing the single currency–there is very little if any political unity across the zone despite all the stupid little politically correct rules and regulations heaped on the people of Europe by Brussels-based bureaucrats.

Our report on preparing for the breakup of the European Monetary Union was penned in June 2009. We relied on deep thinkers such as Bill Emmot to guide our views. Notice how prescient this quote was from Mr. Emmot back in 2003:

Politically, though, this unity also has the potential of brining about explosive disunity. During deep recessions, the single, one-size-fits-all monetary policy could pit national politicians against the European Central Bank as a feeling grows of national impotence in the face of rising unemployment. It is not improbable that one or more member countries might withdraw from the euro and reintroduce their national currencies at some stage during the currency’s first decade.

                           Bill Emmott, 20:21 Vision, Published 2003

Bada bing, bada boom!

If your short euro, you just gotta love the smell of breakup in the morning…bad price action this morning by the euro on so-called good news doesn’t bode well for the single currency when considering the other ticking time bombs in the market.

If you are a long time reader of Currency Currents, you know that one of our favorites of all time is Mr. Milton Friedman. A man whose faith in the market, and brilliant summaries of how it really works, has proven so consistently right for so long regardless of hollowed howls from so many who love government and afraid to compete. Mr. Friedman was quoted as saying this in 1990:

It seems to me that Europe, especially with the addition of more countries, is becoming ever-more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.

Stay tuned.