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QE2: Can It Be Anything But Disaster for Europe?


And the bigger problem: It won't be possible to contain contagion to Europe alone.

So the Irish bailout details have come out. No Paulson bazooka, no shock and awe, just kick the can down the road. There's enough room for a Portugal can kick, but the bridge to Spain is washed out.

I wonder what the European Central Bank is mulling to repair that bridge; there was no indication of a plan based on last night's release, other than the fact that banks loans are immune from any impairment.

The Irish people have to step up and sacrifice so that the European banks that made bad loans to the Irish banks will not have to take any haircut. To help out the European banks, the Irish nation pension fund is being looted, and the money is being dumped into the bad Irish banks.

, a 1976 movie, has a network anchor, Howard Beale (portrayed by Peter Finch) going ballistic on air and calling for everyone to go to their windows and yell out "I'm mad as hell, and I'm not going to take it anymore." Although the film was designed to be a satirical exploitation of Beale this clip from the movie has remarkable timeliness to the problems of the Irish people today.

Quite frankly, I'm not completely sure what Howard was yelling about, but I cannot come up with a better example of what the Irish people should be doing, which is being mad as hell and not taking it anymore.
Somewhere between 50,000 and 100,000 people marched against the bailout last Saturday, and that was before they knew the terms of the deal and the looting of the pension fund. The current Irish government, a coalition of several parties, has a bare majority in the Irish parliament, and new elections are being called for. There needs to be a new budget approved by December 7, and new elections will not be long in coming. The current deal has no collateral provisions. If the Irish people revolt against this deal, it could completely blow up in the next couple of weeks. Look to the Argentina default in the early 2000s for a game plan.

Even if the Irish people don't revolt, the easy can-kicking will end after the run on Portugal. As I wrote in What Amount of QE2 Separates a Healthy Economy From Hyperinflation?, our good old Fed is completely losing the currency debasement race to the Euro. The second half of 2010 has been a Seinfeld's George Costanza moment where everything is the opposite of what should be happening.

The front running of the Fed's QE2 program during September and October led to strong markets during what is usually the weakest part of the year. Now QE2 seems to be irrelevant as Europe seems to be on the brink of recreating 2008 during what are usually the strongest months of the year. I just don't see how this can turn out to be anything other than a disaster for Europe and the contagion won't be able to be contained to Europe alone.

Where do you run to? A strong dollar and strong gold has not been the normal correlation, but maybe they are in a "Costanza" moment. Cash is trash, but I can think of a lot worse investment choices. If there ever was a time for tight stops in your investments, today seems like the right time to implement them.

Short euro; mulling a position in bunker builders...

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Position in euro.

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