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Economic Review **Current Euro and Greece Situation - 2012**

Discussion in 'Commercial Trade Journals' started by Stavro D'Amore, Feb 20, 2012.

  1. Stavro D'Amore

    Stavro D'Amore Former FPA Special Consultant

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    Hello All,

    I have had many questions in regards the current EURO and Greece situation and I have written a brief scope on current activates facing us today and the future.

    Euro Zone structure
    The European Union knew that currency was insufficient when they designed it. This currency has no common central bank and also has no treasury unlike the US during the GFC that had the Federal reserve put into operations, regulations and rules. Australia was a clear example of increasing their interest rates to accommodate any such GFC crisis and minimizing it. This euro creation that the European unions have performed unavoidable, the Maastricht treaty was meant to bring about monetary union, this was also meant to bring a non-political union.

    But as you can see that there has been nothing but political movement in the Euro zone. When the Euro was created the union were in no doubt that things would be fine, but when the euro zone ran into a calamity they thought they would be able to conquer it.

    Eurozone has not controlled there economy due to the lack of central bank, we have seen increased inflation over all the European unions also bring the effect of several stagflation cases. This is because the draftsman did not setup the euro zone correct.

    That lack of a common and un-regulated system was that bankrupt of Lehman Brothers on October 15 2008, At that time Angela Merkel, Germany’s chancellor, said that each country should guarantee its own institutions, refuse and breaking the first rule of a union.

    Greece and Euro Rescue Package
    First was the Greek rescue package and its failure this is why you see a second hand out, now a temporary Band-Aid emergency funding with a second bailout, Euro Zone reached an agreement on Greece second bailout package.
    The second bailout programme for Greece will involve financing of 130 billion euros and aims to cut Greece's debts to 121% of GDP by 2020. We all know that a 8 year guide line will not work meaning Greece will need to cut 15.1% of its GDP a year, so what happens if one year is missed?

    The problem that I see is not the fact that Greece has had two bailouts or liquidity injections given that is required, it is that there current economic structure could not be facilitate through these strict austerity measures.

    This is a simple example that I will use to explain the situation:
    You have a swimming pool, half of the pool is ice the other half is water.

    We have Germany who’s known as the head of the EU because they constituted all other EU countries to become a union. Now exclude Greece, Italy Portugal and Spain the rest of the EU countries are the ice.

    Greece, Spain Portugal and Italy is the water being Debt. The whole pool including the ice is the Euro zone being debt free. Now Germany and non debt riddled countries (EU) do a bail out on Greece so we lift the ice and drop it in the water were Greece’s spot is in the pool, the water level in the pool will still be the same level again as it originally was when we lifted the ice.

    Thus meaning that the debt will always be there because the structure of the EU was incorrect from the beginning.

    So in conclusion when you have a house with bad foundations it will crumble, You need to either rebuild or spend lots of money on a renovation that is not guaranteed to work.

    One way to fix these sort of issues that EU is facing is to either devalue the Euro or Greece to be removed out of the Euro but still have a say part of the union, either way with the second bail out it looks like Greece will not be removed from the EU after all and fundamentally we will see in the near future a massive devaluation of the Euro currency crosses.

    Should Greece be removed out of the EURO and go to there original currency the drachma, it will cause a major financial crisis! not just for the people in Greece but also global financial institutions that have holdings in Greece there investments and bonds will be devalued all most instantly this will also effect many Governments and will be a ripple effect at its best.

    I hope this has cleared some air and your understanding of this crisis

    All the Best

    Stavro D’Amore
     
    #1 Stavro D'Amore, Feb 20, 2012
    Last edited: Sep 15, 2012
  2. RahmanSL

    RahmanSL Major

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    Hi Stavro, thank you for that confirmation of my sentiment....and yes, it did clear more than "some air" for me.

    I especially like your analogy with the swimming pool as to the actual financial situation in the EZ;)

    In anticipation of the Euro being drastically revalued, I have left a couple short positions with TP set at 1.256 level. Maybe even at this level I am being overly optimistic about the Euro?? Perhaps I should set TP at 1.000 level????

    All the best!
     
  3. Stavro D'Amore

    Stavro D'Amore Former FPA Special Consultant

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    1.00 Look Good lol :)
     
  4. RahmanSL

    RahmanSL Major

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    1.000??? Really???;)

    Ok, I will set 2 of my shorts TP at 1.100 and one at 1.000 and let them run from 3 to 6 months :p

    Thanks buddy!
     
  5. A W McMillan

    A W McMillan Recruit

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    Spot on Stavro . Got my vote
     
  6. Stavro D'Amore

    Stavro D'Amore Former FPA Special Consultant

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    Thanks i think its clear :)
     
  7. nzfriendlee

    nzfriendlee Private, 1st Class

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    Hi Stavro,

    Thank you for your effort for the members!
    Now its much more clear for me to understand about what is going on in EU.
    I enjoy your analysis.

    Cheers!
     
  8. INVESTOR

    INVESTOR Private, 1st Class

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    For what I have learned in life, a Union is stronger than an individual. Even a hand with a finger being cut off will do better that a hand that has only its arm to suntain it. That's my analogy for the Euro Union and the USA. (EURUSD) Greece is not the EUs thumb. It will make no difference to the future of the Euro if Greece is part of it or not. But what would it happen if the USA loses California? Will UK come to "his" rescue? My view is silmply that USA and Japan are walking in a finner line that the EU, simply because they are on their own. I know, USA can "create" a war anytime, anywhere in order to de-stabilize the world and make everybody run for "safe haven" on the USD...
    This is a game of fear, not economics....!!!
    I'm long on Euro, and so far, it has been fairly effective on my checkbook...!!!

    Regards and good luck to you Stavro and Rahman
     
  9. Stavro D'Amore

    Stavro D'Amore Former FPA Special Consultant

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    Also the smart move here that I missed is that EU release this when there's a US holiday comming? Makes me think was this because they wanted to take advantage of low liquidity.
     
  10. Stavro D'Amore

    Stavro D'Amore Former FPA Special Consultant

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    Are you Crazy?? Not about going long...on EU that's your trade and your decision not mine....im talking about if Greece left the Euro? It would be a major CRISIS!!. If it was that simple EU would not give a second bail out and spend this much money that's for sure. Do you know how many people are exposed to Greece? Globally?? We are talking about a country not a State like CA. Plus a hand with no fingers wont work unless you get a robotic arm. No point having a fountain with no water doesn't look good does it.
     

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