By Ryan McGuire
For gold avalanche
Maybe it's me, but is it more than a little strange that the pro-austerity, pro-bailout centre-left party made it into parliament?
Perhaps the offbeat surprise comes from the fact that all we have been hearing through our major media outlets about Greece is that anti-austerity sentiment has gripped every corner of the country. I guess not everyone was against germany's austerity measures, and according to a Reuters piece released a few hours ago, it seems like when push comes to shove, the people figured bailouts and austerity are the only real answer.
If that's true, here's the problem: The Euro made it possible for countries with small, sluggish economies to be able to borrow vast amounts of currency at ridiculously low rates.
I made a short skit to illustrate:
Jimmy: I really need a boat. A big one.
Loan shark: do you have plans to use the boat to make money? If so, I'll loan you 2 million and you can pay me back in the next ten years at 2% interest.
Jimmy: holy crap what a great deal! Maybe I'll also pave my parents driveway and hire some out-of-work people to do odd jobs, and pay them well to do it! Of course, right after I start my new boat related business!
Loan shark: Great, do we have a deal?
Jimmy: you bet we do.
Loan shark: superb!
Jimmy (after singing the paperwork): I guess I'll have to pick up some extra shifts down at the malt shop so I can make those payments while I draw up a business plan.
The idea here is that while Jimmy fails to consider that paying back the monsterous loan will eventually cripple him, especially since he has little business sense, the loan shark fails to ask enough questions or to have any serious criteria for loaning the money.
But this is essentially what the single currency in the Eurozone accomplished. On one hand, it gave weaker economies full access to a strong currency, and competitive lending and borrowing rates which allowed these countries to finance massive real estate bubbles (Spain) or create duplicate government jobs, and spend wildly on things like big bridges (Greece). On the other hand, it put stronger economies in a precarious, if not dangerous position because the weaker countries seem to have simply borrowed themselves out of house and home.
Its a classic newb mistake. It happens to lots of Americans every year. We borrow way too much money, and then we have to consolidate our loans, forcing the banks who made the loans in the first place to take a big haircut on the amount of money we need to pay them back. Hmm, and we're upset that this is happening on a global basis? Perhaps before we get too critical of the financial policies of other countries, we need only look into our own backyard, and maybe even our own lives to remove some of the junk we've collected via our maxed our credit cards.
I vote that we get the "till debt do us part" lady from tv to go over to Europe and show them how it's done. She can teach them how to budget and live within their means. Then when she's done there, she can do the same thing in the US. Heck, it's better what what we've got going on now!
In an untwisted, not ridiculous, not borderline frightening note (read: sarcasm), tensions between Israel and Iran are seriously mounting. In fact, the deadline Israel gave Iran before Israel goes on the attack is approaching quickly. Let's hope that peace (read: non-violent, mutual SHALOM) can be reached between these two opposing nations.
You also may have noticed that I haven't commented on the Dow theory in a few weeks. The reason is simple: no change in trend has been signaled sine that last post under "Dow theory". General equities are still "hold" or "buy on dips" in my book, but I would be choosing very carefully, and I would consider weighting holdings toward commodities, miners and strong "glocal" companies which pay a decent dividend.
Here are some choices to consider and research: McDonalds, Newmont, Agnico-Eagle, Franco Nevada, Boeing, and Cameco.
Here are the articles I'm talking about
http://goldavalanche.blogspot.ca/2012/06/three-scenarios-to-watch-in-coming.html
http://goldavalanche.blogspot.ca/2012/05/market-waters-are-swelling-but-its-not.html
Traders, you are a different situation all together. Trading these volitile markets can be profitable, but it is not without it's pitfalls and dangers. If you are interested in trading, I respectfully point you to fellow blogger Scott Pluschau (www.scottpluschau.blogspot.com). He knows his stuff and may be able to assist you in your trading ventures.
Until next time,
Peace
Ryan
