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Trading Lessons

Debt Crisis and the Euro Blood Bath, ConDem Death Embrace

Stock-Markets / Financial Markets 2010 May 15, 2010 - 12:49 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleThe UK election politicking is over, Britain has a new ConDem government led by David Cameron of the Liberal Democrats and Nick Clegg of the Conservatives, or is the other way around, hard to tell these days.


The coalition government parties have publically locked themselves into a 5 year death embrace. They had no choice, as their honey moon period will soon evaporate as the government has no choice but to implement swinging spending cuts and mega-tax rises such as VAT to 20% to fill the 25% black hole between what the government spends and what it earns in revenue which will soon ensure that the ConDem government is destined to become the most hated government of the past 50 years!

The ConDem strategy is clearly to survive the painful years of 2010-2012 and then engineer an election boom into 2015. If the coalition disintegrates during the pain years then that would likely result in a Labour landslide victory.

The pressure is now completely off of Labour who succeeded in killing two birds with one stone (12 May 2010 - Gordon Brown Mission Accomplished, Labour General Election Plan a Magnificent Success). Labour are now FREE to go on the offensive and play mischief as their strategy is clearly to systematically rip the coalition government apart that I would be surprised if it does not disintegrate within a year. It is just not manifestly workable for a partnership between left wing and a right wing parties to survive.

Stock Market - The stock markets are flipping from one day to another from flash crash to flash bounce back to flash crash, it's difficult enough to know what's going to happen tomorrow let alone further out, still my Sunday's newsletter will attempt to conclude towards a stock market forecast trend for the next 2 months.

Gold / Dollar

Gold and the dollar continued their bullish dance as a consequence of TREND.

British Pound

Ended the week weak at £/$1.45, still targeting a sub £/$1.40 low.

Euro Blood Bath

The Euro continued its slide right into the end of the week closing at 1.2358, down 10% in less than a month. My early week analysis (11 May 2010 - E.U. $1 Trillion Bailout, Detonates Nuclear Option of Printing Money to Monetize PIGS Debt) speculated that the most probable outcome is for the Euro splitting into two which basically means Germany would stand on its own.

EURO II ?

This, first of a series of money printing debt monetization bailouts puts the Euro firmly on a trend towards high inflation as are all fiat currencies, i.e. the fundamentals of the Euro block composed of many small weak economies that cannot devalue internally against highly competitive strong economies will still remain. The only possible solution is for a Euro II, i.e. split the Euro into two currency blocks one for the weak that suffer higher inflation and interest rates and the more competitive countries as part of the Euro II block (could just be Germany on its own?) which would act as a safety valve in times of economic crisis that demands internal currency devaluations.

Everyone's dumping the Euro and European stocks, time for selective accumulation into Germany? Remember, Panic and Crisis breed opportunity!

Ihr Deutschland investierend analytiker.

Comments and Source: http://www.marketoracle.co.uk/Article19511.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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Comments

Clive
15 May 10, 03:02
Your right there

Hi Nadeem

Clive from up the road in Newcastle. What a mess we are heading into. I can forsee hugh problems for the North East with its reliance on public sector employment and struggling (and minor) private sector.

Thanks for all the analysis, very much appreciated.

Regards

Clive


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