Currencies
Why the Eurozone Debt Crisis Never Really Went Away
How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?
Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.
But while the crisis faded into the background, it never really went way.
Remedies that were sold as solutions haven't solved a thing.
The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.
"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.
In fact, the Eurozone debt crisis is getting worse.
Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.
Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.
And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.
"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."
The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.
International M&A Boom Fueled by Global Currency War
A binge of mergers and acquisitions (M&A) is being fueled by the global currency war, which has increased the value of emerging market currencies.
The value of worldwide M&A totaled $1.75 trillion during the first nine months of 2010, a 21% increase from comparable 2009 levels and the strongest nine month period for M&A since 2008, according to Thomson Reuters.
But mergers and acquisitions involving companies located in the emerging markets skyrocketed by 62.9% during the same period over 2009, totaling $480.7 billion. During the first three quarters of 2010, emerging markets accounted for 27.4% of worldwide M&A volume compared to 21% during the comparable period in 2009.
And companies are showing more willingness to venture across borders to find the resources they're after.
M&A activity in deals across international borders has surged during the first nine months of 2010, totaling $723 billion accounting for 41.2% of overall M&A volume, compared to 26.1% last year at this time.
Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift
[Editor's Note: We want to hear from you! Do you have a comment, suggestion, story idea or a question? Let us know at mailbag@moneymappress.com. (**) And be sure to check back for responses to reader questions and comments.]
The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.
The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds – similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.
"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.
What's In a Name: Can the U.S. Afford to Call China a Currency Manipulator?
It seems like every six months the debate over China's currency, the yuan, reaches a fevered pitch: The Washington bureaucrats threaten to label China a "currency manipulator" and Beijing threatens to dump its U.S. debt holdings.
Then, with the imminent approach of a major inflection point – be it a key international summit or major financial report – both sides grudgingly agree that a modest appreciation of the yuan would be mutually beneficial.
However, things could be slightly different this time around. China has routinely ducked calls to revalue its currency, and in doing so greatly agitated the West.
Is it Time to Bet Against the U.S. Dollar?
The U.S. dollar has been one of the world's strongest currencies in the first part of 2010. But, is the greenback really the bet choice for safety, quality and security? Read this report to find out why it's time to bet against the dollar…
From Leader to Laggard: Is it Time to Bet Against the U.S. Dollar?
The U.S. dollar has been one of the world's strongest currencies in the first part of 2010, posting double-digit gains through the end of May.
And little wonder. The Greek debt crisis continues to threaten Europe's overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there's China, – the engine of world growth during much of the financial crisis – which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it's easy to see why currency investors have sought the safe haven of the U.S. dollar.
In short, it appears that "everybody" knows the greenback is the best choice for safety, quality and security.
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
To see why the dollar could roll over – and to see how to play it – please read on …
The Shift Toward De-globalization is Bullish for Gold
You can see signs of de-globalization everywhere. Just look at the intense shareholder opposition to Prudential PLC's proposed takeover of the Asian operations of American International Group Inc. (NYSE: AIG).
And that's just one example.
The market scare on news that North Korea had, indeed, sunk a South Korean Naval vessel was another. The "flight to safety" in U.S. Treasuries – sparked by the increasing concern about the future of the euro and the viability of Greek government finances – is a third.
All over the world, little by little, the apparently inexorable tide of "globalization" – making the world "flat" in the words of Thomas L. Friedman – is retreating. If a full-scale financial crisis breaks out in the next few months, that retreat will become a rout. And the world will become de-globalized.
How to Play Gold – So it Doesn't Play You
[Editor's Note: In an essay yesterday (Thursday), Money Morning reported how the Greek bailout has turned gold into a "must-have" investment. Today (Friday), Money Morning's Martin Hutchinson explains how to prepare for the looming zoom in gold prices.]
The Greek bailout has turned gold into a "must have" investment. But the new gold rally will be different from gold rallies of the past. This time around, gold isn't serving as protection from inflation… it's become more speculative. Read this report to find out exactly how to play gold now.
Taipan Daily: Trillion Shmillion – Europe's "Common Currency" Is Still Doomed
Click to read the original Taipan Daily article.
As far as the euro goes, the trillion-dollar "shock and awe" program was a shocking disappointment. Here's why.
"… while Europeans no longer fear foreign armies, they are starting to fear foreign bondholders. Europe's existence as a "lifestyle superpower' has depended on an ample supply of credit… "
- Gideon Rachman, Financial Times
"…this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems…"
- Marc Ostwald, Monument Securities
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