How Europe's rule breakers are going to KILL the euro

🧠 The Big Brain
The Next Euro Crisis Is Brewing

Regular readers will know we’re not the biggest fans of the Euro project. What started out as a good idea evolved into an entirely different beast.

Spoiler: It won’t ever become the EUtopia that was dreamed of

But breaking up is hard to do (unlikely) so we have to deal with the eurozone as it is, including the many political contradictions, the constant cycle of crisis, calm, crisis and figure out what might happen down the line.

The largest economy, Germany, is in deep scheisse, and now dealing with a resurgence in nationalist sentiment.

Obviously this economic weakness has implications for the eurozone & and the single currency.

See, there’s been an ongoing tension about fiscal prudence between the previously frugal nations, such as Germany, vs the Southern nations.

In plain English, the frugal northerners have a problem with the PIGS (Portugal, Italy, Greece, Spain) spending ‘beyond their means’.

Italy’s ignored the latest deficit objective again, risking another political rift…

And it’s not just Italy either:

Germany will not have a deficit because they have ahem ‘special funds’ that shift their deficit spending into the magical shadow realm where accounting doesn’t exist…

Now, this internal battle is always one to monitor closely. The spread between Italian & German 10 year bonds is a key gauge of internal risk.

The BTP-Bund Spread is currently at 198bps. It doesn’t matter yet, but if the spread blows out, we could see panic at the disco ECB:

ECB Reaction Function:

• Under 200bps - couldn’t care less

• Over 200bps - monitoring - chill out, no need to panic

• 250bps - Threats: WE HAVE TOOLS & WE’RE NOT AFRAID

• >300bps - Death of the euro, bazooka sized solution or bust

More detail on the importance of this here:

Point is, put this spread on your radar and watch for another bout of euro weakness if the fiscal stuff kicks off and/or the spread widens.

Beyond that, the issue of staying competitive is going to be key in coming months/years.

This is an excellent read from Toscafund, and here’s the key point…

One massive issue with currency devaluation is that input costs, such as energy, can rise and offset the competitive benefits.

Thinking cap on: will the EU/ECB sacrifice the euro for trade benefits?

Fink, with our cap on: in the end, yes.

We don’t have to think that much — just look at a chart of the euro.

It has never regained its prior high after a crisis, and likely cannot with the current awful economic conditions.

Scary.

⚡ The Spark
You can’t turn $100 into $100,000 with trading

Luck has always fascinated me. Especially the role it plays in trading outcomes.

Some influencer is apparently claiming they turned $100 into $100k.

People are saying this is impossible.

Nothing’s impossible, but it is improbable.

See, you can kind of model these things out. Start with $100 and add 2% per day (which is AMAZING consistency) - it would take ~350 trading days to reach 100k.

Do the same, but at 5% per day, and it’d take just over 140 trading days…

This would already be Hall of Fame levels of trading (or MASSIVE luck) but here’s the kicker…

On the 2% example, it takes ONE HUNDRED AND EIGHTEEN DAYS to build from 100 to 1,000.

Even on the 5% example, it takes 49 days to go from three figures to four…

Which is just way too long…

So, most people make the dumb mistakes by leveraging up and trying to get there faster.

Then they blow their account and start from 100 again.

The best advice for anyone starting out in trading is always, don’t.

The second best advice is make sure you have more than $100 in your trading account. Ideally, a LOT more.

Plus another source of income to cover your bills.

And remember it’s a marathon, not a sprint…

💡 The Lightbulb
Why would you ever want prices to go down?

Seriously guys.

It’s becoming a problem now.

The amount of people who want deflation is a PANDEMIC.

Here’s why we don’t want it…

@fink.tok

#deflation is worse than #inflation. Controversial, i know. But think about it… for prices to go backwards, it means MANY people need to b... See more

These concepts of inflation, deflation, bull and bear are not just like, weird abstracts.

They have specific pros and cons, different contexts and economic outcomes.

Finito: a world of rapid and harsh deflation is arguably worse than a world with inflation.

The gameplan would naturally be to buy stocks though, since the Fed would do the biggest, sexiest and wettest liquidity provision of all time.

‘Murica to the rescue.