Chaos in Europe

My take on the euro situation is that the EU is in a catch-22. If they bailout Greece (which it looks like they most definitely will), what signal does that send to the rest of the Eurozone, and in particular other high risk nations like Ireland, Italy and Spain? Will bailouts become the norm? What signal will that send to outside nations and investors about the credibility of the currency, if not the entire region? There is also potential inflation concerns to be worried about.

Yet, what signal does the EU send if it allows Greece to default? What will that say about the stability of the euro?

Here is what Sveder van Wijnbergen had to say in a recent AP article on the subject:

"Greece in itself is not a big thing," said Sveder van Wijnbergen, of the Free University of Amsterdam, who says Athens' budget shortfall of euro5 4 billion ($75 billion) is small change by European standards. "I'm worried about what sort of message we give to other governments."

In my view this is a short-term sure thing if I've ever seen one. I'm going to buy some DRR on Tuesday and possibly move some of my gold exposure to this area as well.

Where Do We Go From Here?

I've been following the global economic situtation pretty closely over the past few weeks and the one thing that seems clear to me is that no one has any idea where we are headed. I think it's easy to just throw out a prediction that everyone will forget in fifteen minutes, but if you really want to see what people believe, check out where they've plopped their money. Last week I shifted 15 - 20% of my holdings from an S&P 500 tracking ETF to VXX, which tracks the VIX (in theory). Pretty much I'm paying 89 basis points for insurance against any future collapse, which I think is entirely possible.

My rationale for this move is for the most part the debt situation in Europe. Carment Reinhardt is not enthused by what is going on there. Arnold Kling reinforces her thoughts, though doesn't go into much substantive detail. The latest news is Greece will be bailed out by the EU, but what will this mean for the Euro? Already record shorting is being done on the currency.

A couple of months ago I bought gold anticipating some sort of situation like this. But the flight from the Euro has not gone to metals, and in particular gold as many anticipated, but instead to the dollar. This needless to say has adversely affected gold, driving it down during a time when all the fundamentals say it should be shooting up! I may looking at UUP to play and hedge off this development (I'm still long gold), but that party may soon be over too. I just don't know.

We live in strange times indeed.