IS THE EURO DOOMED?
Over lunch today with my friend who likes to dabble in trading but is really a deal maker in everything else but trading, he asked me about the EURO. What do you think will happen to the EURO? Hmmm
My first answer was just straight from the gut and it was "I don't see how it can't go down with the house of cards that is Europe." As I thought about my initial response afterward I think I got it basically right. How in the world this whole thing can ultimately stay together with all that is going on is beyond me. That does not mean it will fall apart tomorrow, but over the long term there is going to have to be something that gives. All these countries are so upside down and they are only where they are because of the world wide central bank interventions. Without those I think we would have already seen things unravel. They can delay all they want but they can't prevent what is ultimately going to happen.
The challenge before all of the central banks now is to see if they learned from Greenspan the art of rotating bubbles? Have they figured out how to inflate one thing while another deflates like he was able to do? It does not appear they have to me. Perhaps the game has changed in that rates are already so low that lowering them further has diminishing effects. That is my feeling overall of this effect and if you look at Japan we see the model for extended periods of zero interest rates and how stagnation just sets in. I think that would be a best case scenario if we could pull off what Japan has had, it could be much much worse than that eventually.
The news today of this release of all these criminals orders by DHS is about as shocking as anything I have ever seen. Essentially they are trying to scare people to voting for more tax increases. They are letting convicted criminals free because we can't afford them just because we are spending less than we would have spent, but more than we spent last year. What business lays off all it's people during a year where they spend more than they did the prior year? 51% voted for these tactics, that they will release criminals to intimidate people who are rationally saying no more tax increases, to vote for them. The Repubs should dig their heels in for all that it is worth now IT IS ON. If they don't the rich are heading into the 70's in tax rates before this jerk is done. If he pulls that off he will leave a mess even bigger than the one he has already created as hard as that might be to believe. This guy signed the bill he is now saying will cripple the country if we don't do something to override what he signed off on? HUH?
I veered off into this dialogue because this is going on around the world. The powers that be want to pay off the majority by stealing from a minority group. It is incredible that people don't understand why this won't work. Getting back to the EURO, how can this currency remain long term when most of the members are essentially bankrupt and are being supported by basically one country, Germany?
The chart above shows a near term bearish scenario but potential short term support due to Sentiment being overly bearish at the moment. If you look at the overall chart you can see for the last few years we have been in a down trend. If we were to start to roll back down here, all bets are off. For now over the next week or so I think it is sell the rallies in the EURO, which means nothing for the big picture but it means a lot for how I am looking to trade this. In summary, I think from a large view stand point over the next 5 years, I don't see how anything good can come out of what is happening in Europe without significant pain first to wash out everything. This deleveraging has not thus far been allowed to happen either there or here in the US. It needs to happen. I am not rooting for it but I am stating what I think will ultimately have to happen.
I had an email exchange with a good client today regarding the Bond trade I showed yesterday. I want to make it clear that was a trade from the Bond Trading System and was not in the Swing Service. These two approaches are completely different as I state in the web site. At times there can be a Bond trade in both and at times they could even be opposite of one another which has happened. It needs to be understood that these services are different and have completely different parameters for the trades. I was commenting in the post on why I felt that the mechanical bond trade looked good but that had nothing to do with the signal. That system is automated and spits out trades when it spits them out. At times if they line up with something else I watch, I may at times take more contracts on the trade. It is a judgement call and I discussed that to make a point so I apologize if I created any confusion with that. I look for trades to last for more than a day in the Swing Trades, that Bond trade was entered and exited in one day. It was obviously a great trade and not all of them work out that well.
We are short the ES right now and I am not sure if we will bounce but if we do another nice sell setup for a short term trade could present itself. The spammers have been killing me with comments that I have had to moderate so I apologize if I mistakenly deleted anyone's comment. Sometimes when I check in there are just pages of spam comments and I am deleting them all. Yikes! Maybe I will let the Swedish Penis Enlarger messages through for a chuckle!