Euro Authenticity Challenged

The recent opinion expressed by George Soros that the Euro could fall apart without a central tax collection body and could perhaps retreat to 1.20 or maybe even parity with the USD were not given with full disclosure. The Mail Online reported that the "man who broke the Bank of England, George Soros, 'at the center of hedge fund plots to cash in on the fall of the euro.' " Soros, though he was not personally present was represented by a proxy. His army of hedge fund bosses met in secret on February 8th at an undisclosed Manhattan location to discuss the bleak future of the euro. Neither the menu or an outline of the meeting was released. We can only assume that bear euro strategies, perhaps in conjunction with a pricing guideline for the Greek default swaps, were discussed.

The European session got a boost from reports that state owned banks in Germany and France were going to provide up to €25B to halt the potential default by the Greeks. These banks already have big loans to the Greeks, so the governments may merely be bailing out their own banks with this action. There is bound to be resentment from the Germans. There the government employees qualify for retirement at age 67, compared to 58 for the many many Greek civil servants. Greeks also receive 14 monthly pay check each year.

After trading as high as 136.52, the euro has since backed off, currently trading at 1.3530. Perhaps some of the early strength was a cross trade with the very weak pound. The euro/ pound spiked up to .9147, well above the .8978 Friday close. A poll which showed Conservative margin over Labor shrinking was unsettling. Traders, fearing a divided parliament will not make the tough decisions needed to address the current deficit, have sent the pound head south.

This morning the euro unemployment rate was announced, 9.9% versus 10.1% expected, and 9.9% in the previous period. On Friday the US unemployment will be released. At this time the average guess is 9.8% up from 9.7% in the previous report. There are also some additional market moving reports, including to the NFP due out also on Friday.

With the uncertainty induced in large by the Greek debt crises, and fear of more difficulties with some other euro zone countries, the euro has plunged. US economic reports, most have been positive, has helped the dollar. Open interest in the futures market has been soaring, up over 26,000 contracts last week as the speculators have voted the dollar the winner in the least ugly contest. The path of least resistance still appears to be lower, but we wonder how a market, already a big short, would react if the market has to absorb some negative US economic news. The majority is never right for very long, so we are choosing the sidelines in the euro for the moment.



Disclosure: No equity positions