-- Posted Friday, 6 July 2012 | | Disqus

How much higher might Europe’s latest dog-and-pony show push stocks, bullion and oil? All three soared on news last week that bailout funds can now be plowed directly into sovereign debt without the pretense that the money be used to stimulate “growth.” It’s tempting to say that the markets got it right, discounting Europe’s apparent lurch toward promiscuous, no-strings-attached, American-style monetization. That would surely be inflationary, right? In theory, yes. By threatening to walk if Merkel didn’t roll over, Spain and Italy have indeed set the European Central Bank on course to promote a credit blowout whose magnitude would be unprecedented for Europe. Trouble is, this approach wouldn’t be the brazen, hairy-knuckled sort of monetization that Helicopter Ben has used — not without some success — to inflate U.S. stock prices. Instead, a substantial portion of the eurofunds would come from actual lenders and not be pulled from thin air as is the Fed’s custom. To underscore the formality of the process itself, it was agreed that the eurofunds will not subordinate private creditors. This amounts to pre-emptive riot control, since private lenders will be able to fall back on the provision without fear of being laughed out of court. (Or do we believe that the Powers That Be would sit idly by as Spain and Italy — is it too early to mention France? — go down the tubes before allowing lenders to get stiffed.)

So, does Europe’s decision to put Spanish fly in the punch bowl warrant an inflationary explosion in bullion, stocks and energy prices? We think not, mainly because the region long ago passed the point where it can hope to inflate much of anything, even by pumping a trillion euros into the financial system. Try as they might at this, Europe’s economy has begun to implode with the force of a black hole. One suspects that even though the Mediterranean upstarts have just mugged Merkel in broad daylight, they’d probably rather the Germans continue to keep the books so that Europe doesn’t go so completely to hell that payrolls go unmet. Protestantism may be dead in Europe, but not the Protestant ethic. And although Spain and Italy apparently have no qualms about bullying Merkel into doing the wrong thing, the fact that their respective bankers are bending to a no-subordination clause suggests they are not quite ready to do business the American way – i.e., making up the rules as they go along. If America’s mass delusion is that an all-powerful Fed can save us from financial ruin, Europe’s is that a bunch of bankrupt or nearly-bankrupt nations can all save each other.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indication of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2012, Rick Ackerman. All Rights Reserved.www.rickackerman.com

-- Posted Friday, 6 July 2012 | Digg This Article | Source: GoldSeek.com

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