The WSJ has a story out today about Euro shorts getting squeezed. The Euro is now at $1.31, its highest levels since before Christmas.
The euro seemed like the most obvious short. The continent seems to be on the verge of collapse. The European leaders always “have a plan to have a plan”, they cannot get their act together. Greece is going to default, and Italy/Spain are both too big to fail and too big to save, according to many. The problems are spreading to peripheral Europe. We noted that even the “safe” countries in Europe, are not nearly as sound as the media makes it seem to be. We have noted on several occasions that Denmark is facing some big problems.
In his first-quarter letter to investors of Greenlight Capital, David Einhorn lashed out at regulators. He claimed that the market is "fractured and possibly in the process of breaking completely." Q1 2021 hedge fund letters, conferences and more Einhorn claimed that many market participants and policymakers have effectively succeeded in "defunding the regulators." He pointed Read More
In our opinion the best decision would be to let the ECB print money. This would help elevate inflation, devalue the euro, which would increase experts. Furthermore, euros could be used to recapitalize banks and countries, which are insolvent.
We think Germany has hesitated out of fears of hyperinflation and memories of 1923. So we can blame the treaty of Versailles or even the assassination of Archduke Franz Ferdinand.
So why is the Euro rising? Because everyone was shorting it. A commentator on Bloomberg joked recently that his taxi cab driver was shorting the Euro. That is the ultimate contrarian sign to go long the Euro. Additionally, it is very hard to place an intrinsic value on a currency. What is the fair value of the Euro? And why short after a big fall? The market had already priced it in.
Hopefully readers will learn a lesson, and never listen to their taxi drivers for financial advice. Even when events seem certain, many times they turn out to be exactly the opposite.