Rembrandt - Abduction of Europa
This oil painting by Rembrandt is a perfect symbol of what has happened to Europe. First I’ll cite Wikipedia on this story as I am no art/Greek mythology buff:
The mythographers tell that Zeus was enamored of Europa and decided to seduce or ravish her, the two being near-equivalent in Greek myth. He transformed himself into a tame white bull and mixed in with her father’s herds. While Europa and her female attendants were gathering flowers, she saw the bull, caressed his flanks, and eventually got onto his back. Zeus took that opportunity and ran to the sea and swam, with her on his back, to the island of Crete. He then revealed his true identity, and Europa became the first queen of Crete. Zeus gave her a necklace made by Hephaestus and three additional gifts: Talos, Laelaps and a javelin that never missed.
It is interesting how Zeus changed himself into a bull to convince Europa to get on his back. In this metaphor Zeus could be considered the Maastricht Treaty which created the Euro currency in a “In God We Trust” sort of way – while promising bull markets. Europe consolidates as a monetary union and gives 4 “gifts”: The free movement of goods, capital, people and services. [necklace by Hephaestus, Talos(Giant Bronze bodyguard), Laelaps(super dog), and Javelin(a spear)] This is the case under the Maastricht Criteria, which at first look seems great but is like a completely unrealistic “prenuptial” agreement. (You can’t cheat on me before but after we’re married all bets are off and I may resort to horseplay, BDSM, and midget orgies.) It has four main criteria for member states to enter:
1. Inflation Rates: Less than 1.5 percentage points greater than average of the least inflating member states of the EU.
2. Gov. Debt and Deficit: annual gov. deficit/DP < 3% at the end of the preceding fiscal year. Gross gov. debt/GDP < 60% at the end of the preceding fiscal year.
3. Exchange Rate: nations should have joined the ERM2 under EMS for 2 consecutive years and should not have devalued its currency during that period.
4. Long-term interest rates: The nominal long-term interest rate < 2 percentage points higher than the 3 least inflation member states.
Assigning ceilings and floors in economics are impossible feats, not to mention the blatant contradictions in this criteria. By the end of 2010, only Poland and the Czech Republic fit #2.
I guess the best part of this metaphor is that it is Greek Mythology – like the Greeks EU membership in a few days…or Europa drowns on the way out.
EURUSD 1hr 12:33AM 09_19_11
Technically, I see further long-term weakness in the Euro and Dollar strength to match it. It may pull up temporarily to 1.3730 in the next few hours as it currently settling comfortably at a long term 61.8 Fibonacci retracement level and its 1.3672 pivot point level. I expect it to eventually smash downwards after.
Fundamentally, there are big winds that don’t show anything positive that I can think up. Greece default rumors are circling and have been this past weekend. Papandreou canceled a trip to the US this past week to tend to some serious crap going down in the markets. Its default could be a sign of acceptance and the markets may actually go positive for a short, albeit VERY SHORT while. Its only better than the alternative of the EU going down with Greece…it may still go down regardless of Greece’s departure. The moment will be only be defined as bittersweet…no, a better analogy is a massive .50 cal bullet wound followed by a serious morphine overdose.
The flip side on this is US action. Operation Twist or no? I and others view intentional yield curve flattening as suicidal and Bernanke as of late has been showing some humility.
As for the US equity markets? The volatility is a like trying to shuffle a deck of cards and play Texas hold’em with you friends while skydiving. You might have a great hand but everything is going down and fast. And when I say down I don’t mean the market, I mean your account long or short is going down. Forget cocaine, this market is on methamphetamines. Its got some serious tachycardia, and it may be climbing a roof but its health is shit, and its once youthful face is melting…
I got the SMF to get to tomorrow at 2. I’m the only one insane enough to manage the financial sector team this year. I clearly have no intention of jumping into an finance sector equities. My strategy? Hold cash and convince as many other students to do so as well. With no shorting or leverage allowed by the prospectus, that’s the best strategy I can think of. Preservation of capital is crucial when shit is hitting the fan. I’m also looking into Muni-bond ETFs but I want to wait until I get some clarity from the FED.
