Check-Mate?
Research for Online Investors

6/26/12

The pressure is building to push Germany to do what they will not do.  Spain, Greece, Italy and France are trying to execute “check-mate” against Germany.  Today, the European Council website published a new…new plan.

This plan was drawn up by the European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup President Jean-Claude Juncker and European Central Bank President Mario Draghi.

The new, new plan is the same old plan except countries don’t have to agree to cut budgets before they get money, the money comes first then they have to submit their budgets to a European Budget Authority that could demand changes.

Isn’t that what is happening now?  Except now the budget changes have to come hand-in-hand with receiving money for bailouts or support in the bond markets by the ECB.  That is the rub; France wants money to “grow” their economy.  Spain wants money to recapitalize their banks.  Italy wants money so they can enjoy wine and spaghetti.  Greece wants money so they can retire.

The “new plan” also includes deposit guarantees across borders and supervision of all eurozone banks by the ECB.

Germany wants to keep the euro together because honestly, they are making out like bandits.  As the largest export country in the eurozone, the cheap euro is a boon to their economy.  If Germany went back to the “Deutsche Mark” the value would rise because of the relative safety and in turn slow their economy as their products became more expensive against weaker currencies.

Germany is learning the danger of having so many “Presidents.”  There are too many cooks in the kitchen, all looking to put in their two cents worth. European governments also want to remove the “preferred status” on any European Stability Mechanism (ESM) funds. This allows the money to flow for “infrastructure” or “growth” plans without creating a two tiered credit market.

Italy’s Prime Minister Mario Monti threatened to resign this morning if Germany does not loosen the fiscal requirements to gain credit from the European Commission and bailout funds.  Angela Merkel said there would be no shared liability for debt as long as she lives.  We will put our money on the German.

In case you missed it, Michael Burry was the keynote speaker at UCLA’s 2012 Economics Commencement.   It is 20 minutes long, but you will learn more here than watching Dancing with the Stars.

He is an interesting guy.  He graduated from UCLA with an Economics degree then went to Medical School.  He ended his medical career in 2000 and founded Scion Capital.  He was blogging about investments at night while doing his residency.  He attracted a following on Wall Street and had money managers send him money to invest.

Burry was profiled in Michael Lewis’s book “The Big Short.”  Goldman Sachs created special instruments for him to short the mortgage market in the run-up to the 2007 crash.  Bloomberg has a good profile show on Michael Burry if you would care to learn more about this gentleman.

The mailbag:
“Get It Over With” was another wonderfully crafted message, full of common sense, and much needed solutions.---subscriber B.B.

John’s reply: Thanks for the kudos.

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