In the land of fiat, the one-armed printer is king

2013-FEB-04

Euro strength continues to astound, especially given the absolute lack of fundamental change or political will to resolve the underlying issues of insolvency, excess debt and chronic deficits in many countries within the eurozone, and certainly not limited to those in the euro-periphery. The EURUSD is now approaching $1.36, a 12-month high and a level unseen since before the Spanish bank bailout. The EURJPY is heading for Y130, after hitting Y95 last summers – a huge move: just ask those German car manufacturers how many luxury cars they expect to sell in Japan this year at a 40% mark-up. The price of gold in euros has also slid away from all time highs of almost €1,380 per troy ounce and is now hovering around the €1,220 mark.

There is a reason for this relative strength – relative being the key word here. Japan’s new attitude under “Inflation at all costs” Shinzo Abe means that the country's huge bond bubble could burst sooner rather than later. Add to this the US under "Helicopter" Ben Bernanke and a Congress that has voted to “temporarily” suspend the debt ceiling, and it should be obvious that we live in the land of the spendthrift, insolvent and downright crazy economics; with Mario Draghi’s ECB currently looking the least irresponsible of the bunch. Admittedly though, the bar is not set very high.

Nevertheless I would caution anybody from becoming too optimistic about the future of the eurozone. If there is one defining feature of currency wars it is volatility, as fundamentals take a back seat to political decisions.

The German Bundesbank has very prudently, as we warned here long ago, decided to bring their gold (if it is still theirs and not multi-owned) closer to home. They know that the current euro hope might not last and that their fellow central bankers are no longer interested in cooperation as much as they are in mutually destructive, zero-sum, competitive devaluations. Gold that you hold is nobody’s debt and nobody’s promise. Gold is the anti-debt.