We’re living in a turmoil. Everything changes rapidly and continuously, and any forecast today will be a joke tomorrow – a statement, a currency intervention or any other kind of thing can change the situation at any time.
However, these interventions can’t modify anything in the background – essential in the creation of every kind of investment strategy.
During the summer of 2007, I had started wandering about a wave of “impoverishment” – all my colleagues and managers told me I was a bad-news bear, a new Cassandra, asking me to stop it, to grow up, to live down to earth…and that was the beginning of my transformation into an Alien Kid (aka Bimbo Alieno)…
We are currently experiencing just the beginning of the impoverishment – but we’re already able to look beyond, depicting future scenarios. It’s impossible for us to know what’s going to happen in a week, a month, three months. But the idea is pretty clear, at least to me:
Even taking into consideration every positive aspect of the Euro, we have to admit that it does not work as it is: the monetary union suffers for the different needs of the member states, and while there’s a rescuing intervention for one of them, let’s say an increase of the interest rated in order to avoid economic troubles in Germany, another area of the Eurozone is getting strangled. This system can lead solely to an unpredictable path for two final results: “less Europe” or “more Europe”.
- Some members will default, leave the Eurozone and find a new balance. This is a catastrophic scenario: any default will boost a devastating domino effect, with enormous economic and social imbalance, creating the basis for a protectionist and even war scenario. The least desirable idea, then. The “system” knows that it has to keep the status quo in order to survive – hence, this first option will be strongly opposed, even if doing its best cannot guarantee the system its survival. Even the “little” Greece can’t default – imagine bigger and “wealthier” countries. The system will do its best. But “its best” could mean anything beyond your imagination, you betcha.
- The birth of the United States of Europe. This would be the unwelcome, but only, compromise accepted by everyone. I’m obviously talking about the “notorious” EuroBonds, of a European Finance Minister, of a single fiscal policy etc…Germany will lose its privilege of a self-funding at reduced prices on the market – the German debt will be “simply” European debt, as well as the Italian or Dutch one. Against the loss in economic power, strong members, Germany in primis, will increase their political powers – and guess who’s going to decide the leading measures for the new single fiscal and economic policy…
We’re talking about a “germanized” Europe, conquered according to merit and not to tanks. It’s evolution, baby. One of the strongest opponents to this idea is France, obviously – but they’ll have to bite the bullet. So far, they’re trying to get a good share in the future distribution of roles/powers even through a strong acquisition of Italian companies. Is there anything good in this idea? Sure. We’ll live happily ever after. In addition to this, certain government securities which are currently under stress would even become opportunities…the bad thing is, the worst is yet to come before the happy ending – get ready for a massive dose of pulp fiction before the closing credits…
First, US and EU should get ready – a recession’s going to hit them both, let’s say around January, and Central Banks won’t have many opportunities to help us (even if ECB has a little margin for decreasing rates). Rumours confirmed by the whispering of macro data, the jargon of technical analysis, the loud voices of the stock markets.
And several tensions will take place in the creation of this scenario – economic, financial, social strains which will contribute to the first steps of a new background. Several years will be seasoned with austerity, cuts, strong fiscal policies – here we go with the “impoverishment wave” I was talking about in 2007, perhaps other “Marshall plans” such as the one offered to Greece last week (and the underlying risk of the opportunity previously examined).
A hard path, beset with bitter and difficult moments – but don’t worry, we’ll live happily ever after.
And please, I’m not a bad-news bear – stop that rumour!