Ashraf Laidi on CNBC About Football & the Eurozone - June 22, 2012
Jun 25, 2012 3:26
Ashraf draws a few analogies between the Euro2012 Football match between Greece and Germany and their respective roles in the Eurozone.
Barely five years ago, it was unimaginable for Germany's "player of the moment" to be named "Mario Gomez", or have a prolific midfielder named "Mesut Ozil". Just as it has become more "accepted" for Germany's football team to have key players originating from Poland, Spain, Turkey and Tunisia, Chancellor Merkel's government may have no choice but to play by the rules of reality demonstrating flexibility in dealing with its Southern neighbors.
The Bundesbank's staunch opposition to bond purchases was overcome two years ago and will likely do so again this autumn with the inclusion of a third LTRO. Although the LTRO was solely useful for containing bond yields and alleviating banks' liquidity costs by dragging down EUROIS spread, it was beneficial in buying policymakers time. Just as the German central bank succumbed to those demands, it has grown tolerant of a temporary increase in inflation. Now Berlin may need to accept rendering the fiscal rules more flexible, by allowing an extension of fiscal targets for Spain and Greece.
Berlin is also being pressured by France and the IMF to further support recapitalizing banks directly without the involvement of the governments, as is currently proposed for Spain.
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A lot has happened since I posted this XME/XLE chart from 3 weeks ago (click on this link and scroll down). Gold is a little stronger vs oil with XME/XLE ratio at 0.59 and the RSI is now testing the trendline resistance. As a reminder, XME is a major ETF for metals & mining stocks, while XLE is the biggest ETF for energy firms. Why am I mentioning this now? Metals (specifically gold) could further be boosted by the necessity for nations (especially oil-importers) to preserve the value of their monetary reserves against oil. Regardless of whether these nations are from the industrialized or less developed world, they must preserve their purchasing power of oil. See whatGhana agreed with the UAE about paying for their oil with gold in my tweetearlier this week. OPEC will be closely watching the ouctome of next week's EU discussions of the G7 price cap on Russian oil exports. Any prolonged decline in oil prices will see OPEC rushing to cut supplies, which would affirm the importance of stocking up on those few monetary/nonmonetary reserves that maintain their value relative to oil. And that would be no other than gold. Watch the RSI on XME/XLE.