Before I begin, allow me to invite you to a special event on Sunday, March 7 at 5:30 pm EST. At that time, I will be holding a free session of my online trade room for all who might wish to attend. Sundays are usually fun (and profitable) as we go over what’s happening in the markets and look to take advantage of the opening gap in prices.
All you need do to attend is send an email to email@example.com. I’ll put you on my invite list and send the log in instructions that Sunday morning.
The recent plunge in the euro was driven by some of the biggest Hedge Funds, according to an article published in the Wall Street Journal.
Apparently, giants like SAC Capital Advisors and Soros Fund Management, run by Steve Cohen and George Soros respectively, actually got together in N.Y. recently to map strategy in the wake of the Greek debt crisis. According to the article, an SAC manager, Aaron Cowen pitched the group on the bearish bet, saying he viewed all possible outcomes relating to the Greek debt crisis as negative for the euro.
Of course, big traders like George Soros, whose fund manages around $27 billion, have an advantage that we retailers can only dream of: the power of his word. Last week he warned publicly that if the European Union doesn’t fix its finances, “the euro may fall apart.”
Of course, the corollary also holds true. When a solution to the problem is announced, as is expected later this week or early next week, we’re likely to see the euro bounce back strongly as these giant traders cover short positions and reverse their bets.
Greece has about 20 billion euros coming due in April and May, and it has to issue additional debt in order to roll it over. At this point, it’s likely that a new offering is being delayed as EU officials spar over the extent to which Greece will need to implement additional austerity measures. Officials basically have egg all over their face after being snookered by phony Greek data regarding its true debt situation, and they’re likely to demand their pound of flesh in exchange for any guarantees.
The latest thinking is that state-owned banks in Germany and France will buy and/or guarantee this new round of debt, but that won’t happen until Athens can assure the EU that it can reduce its deficit from around 12% of GDP to 4% this fiscal year.
Germany itself has a very good reason to let Greece twist in the wind a while longer, because a weaker euro is an enormous help to the world’s third-largest exporter. That only works to a point however, because a lack of confidence in the common currency will have far more damaging effects if the rout becomes too large too fast.
Meanwhile, the conflicting reports regarding a bail-out for Greece led by Germany and France to the tune of€30 billion ($41 billion) began to take shape last week .
Greek officials said they expected to seal a deal by march 5, when Greek Prime Minister George Papandreou meets in Berlin with German Chancellor Angela Merkel, but senior German officials insisted a bailout wasn’t imminent.
“There is definitely no such plan,” said Ulrich Wilhelm, spokesman for German Chancellor Angela Merkel.
You can bet that isn’t true. Greece isn’t going anywhere and neither is the euro.