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Other Fat Tail Risks Beside Europe


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#1 Russ Winter

Russ Winter

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Posted 28 June 2012 - 11:08 PM

The European situation has now morphed into a scene where rumor after rumor is flung out,  and then algos ramp up in response.  We have seen this time and time again, like clockwork, whenever the markets come under pressure.   One might actually begin to think that Europe’s mess is some how bullish.  What in the world would markets do without the rumors, and rumors of rumors? Thursday 15 point reversal on work that Merkel “cancelled a press conference” took the cake.The whole notion of Germany (only 30% of Europe’s GDP) being willing to dilute its Bund market, without very strong fiscal controls (that Germany runs) over the insolvents, is really a non-starter.  The insolvents don’t seem to want to play along, and the Germans know it.  And Germany well knows it is too small to be the savior of Europe.  Polls in Germany show 79-14 opposition to eurobonds. This scene is being called a “deadlock”, but the odds are now high that everything breaks down.Elsewhere, all the stresses around the world has resulted in a situation where USD reserves held at the Fed are being returned home. In the past that has always been a precursor to a major crisis in the world, Mexico 1982, Soviet Union 1990, Asia crisis 1998-99, and the tech bust 2001. Although Europe is the obvious source of this, I wonder about China as well.Posted ImageEurope has gotten so absurd, that in some respects, other news has my attention. Nike (NKE) was down 12% after hours on an earnings short fall. When Nike was discussing China, the terms used vacillated between perfect storm and speed bump.  Ford also confirmed that costs in Asia were running higher than volumes.  Perfect storm seems more suited to just about everything going on globally.Now that the very expensive disease care system is all ready to deliver a final blow to the Treasury,  the sistema primes more sick people via a food stamps program with no restrictions on what “food” one can buy [The Big Business of Food Stamps]. Totally ludicrous.

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