Investors should remember that apart from offering a broad promise, the European leaders have not disclosed any relevant details. For starters, they have not stated how the EFSF will be financed and how they will magically leverage it by a factor of four. Nor have the policymakers revealed the exact details of Greece’s ‘voluntary’ default! Nevertheless, the market seems to have decided that somehow Europe’s debt crisis is fixed and perhaps, this explains the recent strength in the Euro. The market’s fickle nature notwithstanding, we are of the view that not much has been fixed in Europe and the single currency’s strength should prove to be temporary. If our assessment is correct, further weakness in the Euro will boost the US Dollar Index, thereby curbing the ongoing rally in risky assets. . .
In summary, although the deteriorating economic backdrop calls for a downtrend in stocks and commodities, we are not taking anything for granted and remain prepared for any outcome. Should the downtrend in stocks and commodities resume, we will maintain our current strategy. On the other hand, if the rally in ‘risk’ continues and the downtrends are negated, we will abandon our ‘short’ exposure and re-allocate capital to appropriate assets.
Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets. In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com.