Friday, 9 December 2011

Europe divided (again)

David Cameron, the Prime Minister of UK managed to stir the markets up a bit yesterday by vetoing the new EU treaty. The accord was meant to turn the European Union into a fiscal union which, in turn, would strengthen the common currency. After 10 hours of negotiation in Brussels, all other 26 member countries agreed to sign the new treaty, but as treaty rules say, in order to amend or change any parts a consensus must be reached.

Will the UK still be an EU country in 10 years time ?

The answer to this question might be quite tricky. First, it depends on what one might understand as a EU country: if one refers to the current status of UK as a member country, then yes, it is highly likely that Great Britain is going to keep its current rights and obligations. On the other hand, the likelihood of UK joining the Euro-block and giving up the relative power of its own currency, the pound sterling, is very, very low, especially now that the recent financial crisis exposed the limitations of a common currency (the so-called contagion effect).

Mr Cameron has a very difficult game to play: stay out of the unionization process (fiscal, monetary, budgetary and ultimately political) while keeping a strong voice and maintaining its influence. As a result of its unwillingness to join the unionization, and therefore giving the EU the proverbial cold shoulder, it is only obvious that London's influence over EU matters will be dimmer and dimmer. 

After all this amalgam of contradictory news no one really knows what to expect on the short term, but on the long term, one may only assume that this is a very deep transformation which will ultimately lead to a more unite Europe or to a divided Europe (the political European Union which it would complete the vision of Victor Hugo's United States of Europe seems more probable at this point).

The FTSE Roller Coaster picks speed

It`s been a hectic week: gold went nowhere, the S&P looked like it was going to make a hard move downwards (which fooled me pretty well) and the FTSE followed the steps of its US brothers. All because of European generated rumor-mill: be it that they will accept a massive $400 billion bailout from the IMF, that there should be two types of EFSF, that there should be a fiscal union, that Britain doesn't want it, that EU banks should raise more capital to adhere to Basel3 standards and so on and so forth. 

I`m still on a bearish sentiment for the FTSE and the other stock market indexes and I`m keeping my S&P short (even though I was kicked out from one position because I set the Stop Loss to low and as sometimes happens, before a plunge there is always a fake bull rally). Take care, because this type of volatile, directionless, flat market favors only bid-ask spread dealers and bucket shops. 

Gold outlook

I maintain the same long term bullish sentiment with gold with a target of 2200 by next summer, but I would be very cautious on the short term, as any negative news coming from Europe or possibly from the United States (which would definitely not be priced in) may start an avalanche of deleveraging. It is a very tough game to play if you want to invest in gold and it takes a very good stomach. The graph signals lowering volatility in Gold as if it waits for a catalyst before it decides on its next move, and the catalyst is: are there any signs of more quantitative easing ? We will receive the answer in January when FED meets to decide if Operation Twist and QEm (from mortgage) were successful.

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