Germany will Blink
Stand by for another announcement of massive QE by ECB to bail out Spain's troubled banks. To keep the Eurozone together, it cannot afford Spain to exit. A Grexit is sustainable. But a Spanish exit may be fatal to Eurozone's survival. What's in it for Germany? Well, the EUR is very good for Germany's exports. EURSGD has virtually plunged by 27% from the high of 2.2 in Jan 2008 to 1.60 now. If you borrowed in EUR currency, quickly do a forex to SGD to invest in a good bond fund like AllianceBernstein Global High Yield, Templeton Total Return, your debt would have fallen by 27%. I am doing this strategy. Borrow in the weakest currency with the lowest interest rates. In my books, it's gotta be EUR first and USD second.
If Greece were to leave the Eurozone, Germany would be happy. It's a smallish economy that will never be able to pay off it's debt. Debt-to-GDP ratio is around 150%, which means interest servicing alone is around 4 - 8% per year. It also means interest servicing is around 6 - 12% of Greece's GDP. Yet Greece's GDP is falling by 5 - 10% per year. How can it realistically pay off the debt? The realistic solution is to declare a default and recapitalise all the affected banks in Europe. This meant large scale nationalisation. ECB has no choice but to print trillions to keep Eurozone together.
Greece cannot even balance its budget now, let alone pay off its debts. The EUR is too strong for Greece to dig itself out of trouble. Shifting to the Drachma will help Greece export its way out of trouble.
But if Spain and Italy gets into trouble, Germany has to help. Without Spain and Italy, which accounts for around 1/3 to 1/2 of Eurozone's GDP, the Euro will cease to exist. Germany will revert to Deutschmark and strengthen quickly. As long as Germany's inflation is below 3% it will agree to any form of money printing necessary to keep the ZONE together.
The ZONE will survive for now until next year. But what happens if inflation in Germany spikes up to 4%? Can it afford another QE to bail out its neighbours? The worst case scenario is when Germany falls into stagflation. We don't know what QE will do to inflation. So far it hasn't caused stagflation in Germany. But it has wreaked havoc in Singapore, China, India and the UK, who are struggling with high inflation and low growth. The problem is delayed at least one year before we face the ZONE's problems again.
Gold equities making a comeback
I bought gold equities recently. Just buy the HUI Index, which is based on gold equities, or NUGT, which is 3x leverage on gold equities. It's around 450 now. I bought at 400 and 425. A trailing stop at 430 to protect profit. Target profit at around 500 and next at 600. The return risk ratio is favourable to me. The rise in gold equities coincided with the rise in spot gold. It appears that the spectre of more QE in the US and EU is triggering a reversal in gold.
Charlot: Freshest Seafood in Paris
I've tasted one of the best seafood in my trips to Europe recently. It's at 81 Bd de Clichy, 75009 Paris.
Unlike in Singapore, there is no thick gravy. Everything, from shellfish, mussles, clams are fresh. The crab is so meaty and fat. I've never tasted such sweetness. It's incredible...
