Weekly review……. Online forex outrageous Euro Predictions 2012

It struck me this week when reading Saxo banks list of outrageous predictions that more should be written. In may seem tongue in cheek but such is the messed up nature of the world that it would be good to know what horrible nightmares could be lurking. In view of the current situation I have stuck with Europe

1. The German central bank goes bust.
Yes the Bundesbank, the stalwart of German economic success and keeper of the inflation keys sinks. Well apparently most of the money the ECB has been lending to other Euro zone countries comes from the Bundesbank. According to the latest data over €500 billion has been lent to other countries via the ECB since the crisis started.
 

2. ECB in collateral row.
When the ECB announced that it would lend unlimited funds to banks for 3 years with relaxed collateral rules it was designed to help banks buy more Sovereign debt without embarrassing them too much. Unfortunately in 2012 it was discovered that many banks including French Belgium Spanish and Italian Banks have been depositing euro zone sovereign debt as collateral. An ECB spokesman was quoted as saying ´We have enough of that shite on our books already. How about some milk bottle tops instead`.
 

3. Euro notes
As the crisis unfolded in 2012 one of the strangest developments was the issue of euro currency notes. Suddenly hundreds of thousands of tourists from Spain, Italy and Greece arrived in Germany to change their euro notes into German euro notes. It turns out that 95% of those 500 euro notes in circulation are used in those countries ( nothing to do with not paying taxes and dodgy property deals of course). Reluctantly Germany was forced to swap these notes into the German paper money. However, they had never printed denominations above 100 Euros so angry Southern Europeans were forced to buy extra suitcases to transport the notes home
 

4. Democracy in Europe not dead.
In amazing scenes of triumph Marie Le Pen wins the French election in April. She confirms that France will withdraw from the EU and proposes a new Entente Cordial with their true allies Britain. A snap election in the UK sees the UKIP party ( United kingdom independent party) win with ease and immediately leave the EU.

5. Brussels closes down
With the decline of the European Union politicians and civil servants were forced to leave Brussels. Thousands of expensive restaurants went out of business together with hotels and luxury giftware shops. Brussels rail station was a ghost town as the hundreds of gravy trains which had poured into the city were left idle.
 

6 Greece passes its 18th Austerity package.
The Greek government headed by Nana Mouskouri announced its 18th package of austerity designed to get its budget in order. Wages were slashed another 1%. Indexing of state salaries’ and pensions was capped at 10% and the retirement age raised to 47. The average salary in Greece is now just € 1874 according to the tax authorities who claim that revenues were up nearly €17000 Euros since the imposition of a 50% tax rate. The economy continues to struggle with sales of luxury cars down by 7 Mercedes and 2 Porches
 

7. Italy reverts to Emperor
Despite some initial protests Italians have by and large welcomed the new Emperor, Bulusconi to office. Emperor Silvio as he is known began a weeks celebrations by organising a series of Bunga Bunga parties accross the whole of Italy. Emperor Silvio was voted in on a promise of reduced taxes and solving Naples rubbish problem.
 

8. Germany rules out return of Deutche mark.
Despite speculation that Germany would be forced to bring in its own currency and therefore threaten its huge competitive trade advantage politicians seem more likely to stick with their plan to use the rouble. It makes sense said a spokesman following announcement of record German trade figures.

9. Europe forms a ´Bad Bank`
Following on from the Irish, Europe decides to establish a bad bank to package up all problem loans. The bank will be called the ECB and politicians hope that China will buy some part of it.
 

10. Europeans win World Waste of Space award
Messrs Jose Manuel Barroso , President of the European commission and Herman Van Rompuy, President of the European council have won a landslide victory in the award for the biggest waste of space. They truly are in a league of their own when it comes to being overpaid, unelected and not fit for purpose.
 

EUR/USD finshed 2012 on a stronger note back up at 1.05 floowing its record low of 0.85 earlier in the year

Weekly review.. Wait and sell or sell and wait

So lets qualify this statement.I mean that I think equities,peripheral euro zone bonds and the Euro are a sell (put the Australian dollar high up that list as well). On the buy side I naturally have the US Dollar first on the list.At the moment there is something for every pundit to claim success. Equities which sold off Thursday bounced back Friday and the Euro likewise snuggling up close to EUR/USD 1.3400.Italian and Spanish bonds did not recover all there lost ground and will be key to forex moves again I feel.
My reasons are the summary of the summit which I detail under and as you might gather does absolutely nothing for the hear and now problems. Maybe we will have to see the glut of Southern European depressing data before it happens Yes the ECB may have eased tensions a little in the Euro zone banks but just think of all that Italian Spanish and French debt coming up. Finally we have the rating agencies with Standard & Poor’s announcing late Friday that they should make an announcement In a few days This will be the focus of all markets or should be as it will have big potential to be next weeks biggest market mover.

Summit in short.

• Under the tougher fiscal rules, a member state would face automatic sanctions if it runs a budget deficit above 3% of GDP unless the sanctions are overturned by a majority of euro-zone nations.
• Debt to GDP would be capped at 60% and countries would have to write into law a commitment that if they had a debt burden above that, they would steadily reduce it.
• The euro-zone leaders tasked European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso to present a report on possible measures by next March.
• Leaders promised to increase the financial backstops to countries with debt problems by channelling EUR200 billion of funds to the International Monetary Fund but put off a decision on a proposal to lift the EUR500 billion cap on the funds available to the European Stability Mechanism till March.

Conclusions

• British Prime Minister Cameron has become a scapegoat. The outcome will have suited many countries who would possible struggle to ratify a new treaty
• What ever happened to the trillion or trillions of Euros once promised
• The agreements have no legally binding character. ( in fact a newly elected government could revoke commitment)
• Was the need for growth even mentioned let alone addressed.

Economics and markets
Already Portugal and Belgium have seen negative 3rd Quarter GDP data. There will be much more to come and Southern European countries including France could face the prospect of additional austerity measures while they are in recession ( Another Greek type spiral).
Sell and wait or Wait and sell? A difficult call and all will hinge on European Bond markets. However, as I mentioned, with Standard & Poor’s due to deliver its post summit review on all Eurozone countries I believe in the short term this could be the catalyst for markets moves. In reality there is not enough from the summit to convince them to not make some downgrades. That said they will likely hang on( this seems to be the consensus view) for possibly a few months. On that basis we might just get a pre Christmas equity rally and you will have the chance to sell EUR/USD at higher levels maybe 1.38 plus. If the opposite happens and there is immediate downgrades which would knock bond markets badly then you had better just sell assets and the Euro and Ausi etc

Mr Sarkozy was infuriated by the British who unlike him have not become a German poodle. When he loses his election next year a new French government will not be tied to anything that he agreed in Brussels according to the lawyers. The rest of the 26 will be pondering sending their budgets to Brussels (as we know now spelt Berlin). Europe dominated by Germany. Great Britain on the outside, now where have we heard that before?