A Warning To the Bond Vigilantes Regarding Spain and Portugal

I am writing this article as I am watching Maybrit Illner and the topic is “what about the Euro”.

For reference Axel Weber has said:

The size of rescue fund to support the euro currency is sufficient and euro zone members will not let the euro fail, European Central Bank Governing Council member Axel Weber said on Thursday.

Also for reference the following has been said by the German and French ministers:

Frankreichs neue Außenministerin sagte, es gebe zwischen Berlin und Paris eine «sehr große Übereinstimmung» der Positionen. Alliot- Marie sprach von einem «spekulativen Angriff auf Europa und den Euro». «Deshalb müssen wir die Regeln stärken, um künftig gegen spekulative Angriffe vorgehen und sie auch abschrecken zu können.» Westerwelle sagte: «Von Frankreich und Deutschland hängt sehr viel ab, für das Schicksal von Europa und den Euro.»

What German foreign minister Guido Westerwelle is saying that France and Germany are standing side by side and will attack speculation. Take a look at what the French want to do with the financial system. Thus I am thinking that if bond vigilantes go after Portugal and Spain the Germans and the French will go after hedge funds, private equity, and anybody doing speculation. You only need to follow the rhetoric of Oskar LaFontaine. Oskar wants to completely dismantle the financial banking system.

Getting back to the Maybrit Illner show Oskar’s first comment was, “There is no Euro problem. There is a banking and finance system problem.” Hans Eichel also on the show put it very bluntly, “the Euro does not fit into the perspective of the British and the Americans, and the financial system of those respective countries. Hence they want it to fail.” Both Oskar and Hans represent the socialist wings of Germany. And this is the problem. You only need to listen to the clapping when Oskar talks about criminal bankers who are giving out bonuses and yet not in jail. The German populace has a strong dislike for the financial community. Guido Westerwelle who was also on the show represents the government did a FANTASTIC job defending the Euro and the need for Germany to remain in the Euro. In the same breath he nudged himself closer to the left as he talked about regulations.

If the financial community decides to challenge the Euro like Soros did with the British Pound here is what I can see happening:

  1. Short the Euro.
  2. Drive the Euro down and raise the competitiveness of Germany and other Euro exporting nations.
  3. The USD will become the “safe haven” and drive up the USD making the US less competitive and adding major headaches to the American economy.
  4. Republicans and tea party politicians will have to bite the sour apple of socialism.
  5. Annoy the Chinese who are already raising their hackles against the speculators as their competitiveness is being crushed since they are coupled to the USD.
  6. European regulations will be introduced to control the financial industry with poster child examples being Goldman Sachs and its Greek constructs and Hypo Re who was one huge financial construct.
  7. Companies like Goldman Sachs will be crucified by the elected politicians.

In this the only winners will be the European political system, and the Euro exporters. The losers will be the financial industry.

But the question is will the financial industry show restraint? I doubt it since the financial industry contains plenty of people who would kick puppies.  Me on the other hand I take the other side of the trade and am ok if the financial industry goes coo-coo.

Though here is what I am seeing, and I saw it on the show. Guido and Oskar agreed in the show, and Guido at one point asked, “With you and me agreeing I better rethinking this.” He was joking of course, but it showed that the extreme left and liberal business friendly parties are on the same page. This means anybody betting against them is going to be f****d over. So I ask you, would you rather win this battle and loose the war? Or loose this battle and win the war? From the perspective of the financial community I would say let’s loose the battle and win the war.

Posted in General Trading