House of Cards

Global markets are in a tail spin and certain nations such as Greece are on the brink of collapsing like a house of cards, forcing them off the Euro and to establish their own stand alone currency again.

This sovereign default factor, coupled with spiking yields – a few days ago Greek short term Bonds spiked to an annualised 92% yield! – are putting severe pressures on European banks. European banks are holding so much European government debt on their balance sheets that the rising pressure in bond markets is leading to a dramatic sell off in bank shares. Societe Generale is getting a lot of the attention setting the stage for a European version of the Lehman Brothers crisis.

So things are ugly, however the major worry is that they are about to get a whole lot uglier. For this reason it’s a dangerous time to buy Euros.

The potential alternative safe haven currencies that we have discussed previously don’t look up to the task. With the AUD being dumped – it plummeted 2c on Monday. Likewise the Swiss Franc and the Japanese Yen are both in the midst of a bout of government intervention decreasing both of their potential as safe havens.

We will talk more about the Franc and Yen tomorrow.

So once again the USD is looking good! It’s still the world’s reserve currency and after last Thursday’s speech by President Obama where he announced a near half a trillion dollars in stimulus to the US economy, the USA at least has itself pointed in the right direction. Unlike the EU who can’t stop bickering and essentially has a do nothing approach as they slide towards catastrophe.

With global markets likely to either stay on edge or go tumbling over the edge it looks as though buying USD might be the most profitable FX strategy for now.