• 4 minutes Will We Ever See 100$+ OIL?
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 11 minutes Energy Outlook for Renewables. Pie in the sky or real?
  • 37 mins Shale Oil will it self destruct?
  • 19 hours Berkeley becomes first U.S. city to ban natural gas in new homes
  • 9 hours Today in Energy
  • 2 mins Iran Captures British Tanker sailing through Straits of Hormuz
  • 2 mins Oil Rises After Iran Says It Seized Foreign Tanker In Gulf
  • 4 hours Drone For Drone = War: What is next in the U.S. - Iran the Gulf Episode
  • 1 day Mnuchin Says No Change To U.S. Dollar Policy ‘As of Now’
  • 1 day Populist, But Good: Elizabeth Warren Takes Aim at Private-Equity Funds
  • 2 days Migration From Eastern Europe Raises German Population To Record High
  • 2 days Washington Post hit piece attacking oil, Christians and Trump
  • 24 hours Why Natural Gas is Natural
  • 2 days Excellent Choice: Germany's Von der Leyen Secures Powerful EU Executive Top Job
  • 20 hours LA Solar Power/Storage Contract
Alt Text

What Beijing’s Retaliation Means For Oil

China has fired back against…

Alt Text

Stock Market Chaos Sparks Oil Selloff

Global markets took a beating…

Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

More Info

Premium Content

Get Ready to Short the Euro Again

The financial markets exploded to the upside overnight with news of Europe’s triple resolution of their sovereign debt crisis. As I predicted in my letter only yesterday, the move has caught traders by surprise, enabling markets to break out to the upside from the recent ranges, and give this fall rally longer legs than most expect.

As I write this piece, the (SPX) futures have popped to 1275, a new high for this move. Ten year Treasury yields have ratcheted back up to 2.26%, and the dollar is in full flight against a basket of currencies. Here are the details in summary:

*Capital for the European Financial Stability Fund will be increased to €1 trillion.

*Greek debt will be written down 50%, halving the country’s debt to GDP ratio in one fell swoop.

*European bank capital ratios must be raised from 6% to 9% by June next year.

The package raises more questions than it answers. It delivers less than what the optimists were hoping for, but more than what the pessimists dreaded. You really have to wonder where banks are going to raise $120 billion in private capital in this environment. As a result, Asian sovereign debt funds will probably end up owning large stakes in European banks at fabulous discount prices.

While the cut in Greece’s debt load to only 120% of GDP is welcome, it offers no clear path on how the beleaguered country is going to cope with the heavy burden of the remaining balance. Of course, the deal is a total home run for the Chinese, who I have been advising to load up on as much Greek debt as possible at 30 cents on the dollar. This is only the first chapter in what is likely to become an epic restructuring of the European economy and financial system. Much work lies ahead, and many more gut churning headlines lie in our future.

The move has triggered a “feel good” rally for the European currency, which has soared to the low $1.41’s. Herein lies the opportunity. Wait for this rally to exhaust itself, then sell the daylights out of the Euro. They next move on European interest rates has to be down. Now that the can has been kicked down the road on the debt problem the European Central Bank can now focus on the distressed economy.

With outgoing ECB president no longer around to justify his disastrous rate hikes in the first half of the year, the new president, the Italian Central banker Mario Draghi, has a free hand to initiate a rapid unwind. At the end of the day, interest rate differentials are the only thing that foreign exchange traders really care about, and such a move would pave the way for a dramatic weakening of the Euro against the dollar. Today’s bail out gives us a great entry point for such a trade.

For those who play in option land, the no brainer here is to buy the $1.40 puts on the (FXE) three months out. ETF investors should start nibbling on the (EUO), the double leveraged short play on the Euro. And to show how earthshaking this conclusion is, my house was at the epicenter of a 3.6 magnitude earthquake that just caused it to literally jump off its foundations with a giant roar.

FXE

By. Mad Hedge Fund Trader




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • Anonymous on October 28 2011 said:
    I guess my reaction to this article is: 'so what?'. Greece is likely to experience 16%-26% unemployment in the next few years. This is a level of employment that is known to create great political instability and social upheaval. The Greek economy may well have to leave the Eurozone and the EU despite all the comments of EU and troika officials to the contrary. If/when Greece leaves she will have to full back on the drachma and a realistically lower standard of living/existence. What will happen in Europe is another story. With Germany refusing to contribute any more to bailout funds, the writing's on the wall for the EU economies. We're likely to see a return to economic and political nationalism as a result of this failure. No one in the European elites wants to confront this possibility let alone talk about it. so they continue to blather on about bailouts, haircuts, and so forth. much like this article.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play