The Euro Zone just gave Investors 1 Trillion reasons to Buy the Euro & it's still not going to Work!
What a joke! The EU (& IMF) just doles out the trillions like there is no tomorrow. On Monday, they set up a massive bailout fund to resue any members of the currency union from default. They "inked" a deal that would establish a $1trillion (750 billion euro) fund. This fund supposedly is enough to take care of Spain, Portugal and Greece for years if they had to.
$526 billion (440 billion euros) will be available as soon as this month, according to Luxembourg Prime Minister Juncker.
Now of course Germany is putting up the largest chunk of the EU fund. So they're "leading the way by example" in making big budget cuts to the tune of 80 billion euros through 2014. Oh they're going to cut out programs to parents...cut government jobs by 15,000 and delay some construction projects. They want other countries to do the same thing that they're doing.
While in the long run, budget cuts are a good thing...in the near term it means that less money will be spent and therefore it will be that much less "fuel" for their economies. That means that there's a much larger chance of a double-dip recession coming due to these cuts.
After all, since when did huge debts, large budget cuts and high taxation ever aid global growth? It doesn't...and since everyone is going into "belt tightening mode", it's going to be felt around the world. Not only will they "suck it up" in their economies but so will stock investors in their portfolios as stock prices have to readjust (much lower) in order to account for the MUCH lower level of earnings that's coming.
So its about to get worse before it gets better. In fact, Juncker and Merkel want Spain and Portugal to make "significant and courageous" spending cuts. Where do they want these cuts to come from? They want to see pensions cut and welfare cut. That ought to go over good. Look for more strikes and cars and buildings to be set on fire before that's all over.
Therefore, I believe you're going to see a ripple that goes throughout the world...and takes down many stocks, commodities and currencies of the world. The assets that will be the "safe havens" to run to will be the yen, the U.S. dollar, gold and U.S. treasuries. Oh, you might see some money run to a few more beaten down assets like Natural Gas...but for the most part, it will run to the other four defensive assets.
Get your portfolios ready now! They can print all the money they want...set up all the bailout funds in the world, and its still ultimately not going to be enough to keep things from turning south and getting uglier before they get better.
Editor, the Currency Cross Trader