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The Badger of Broad Street – Why Europe? 

Welcome to my first letter from Badger’s Holt. Gentlemen don’t “blog”, but my weekly market missives will impart wisdom and elucidation. I’ll be commentating from my den in the depths of the City on what is, what isn’t and what might be in financial markets… This week I wonder about Europe. Next week it might be hedge funds, or the World Cup. 

But first, one thing that really upsets me is the travesty of a film that is The Wolf of Wall Street. From the opening shots it presents markets as strippers and never-ending parties. That’s nonsense. In my day on Wall Street we only had strippers on a Friday and dwarf throwing was in the bar next door! I can’t imagine we’d get away with any of that kind of jolly fun and japes today.. I’m afraid the City is a duller place than it’s ever been. 

I resolutely wear my pinstripes, braces and black shoes every day. A gentleman without a tie is not a gentleman! But, I’ve become the exception rather than the rule. As I gaze around the office I see legions of my European colleagues expensively dressed in Prada and whatever other nonsense they wear. They each seek to be so different they are all exactly the same. Fashion and finance should never mix. I have no time for Eurotrash posturing. If I want to speak to a French or German client I shout loudly at them, and have no desire (or ability) to show off my financial mastery in 3 languages. I figuratively spit on the Euro-boys expensively tousled hair, tight pants and slim-fit shirts (There doesn’t seem to be anywhere to buy a normal shaped chap a shirt in the City these days..!) 

Why are they all here I ask? 

Because Europe offers them nothing. They come to London because its meritocratic, values their degrees in difficult sums, creates employment and because we generally don’t speak European. Maybe that’s why we don’t understand the Euro or the European Central Bank… 

Next week we’ve got the European Central Bank meeting, and markets widely expect Signor Draghi to do something spectacular. Enact European QE, cut interest rates, give the banks billions more Euros of free long term money (LTROs).. but to do something. Anything!

I think markets will be disappointed – I think Draghi will simply continue the ECB’s proud tradition of saying much but doing nothing.. Why? 

Because the only thing that can help Europe is a cheaper Euro. It’s massively overvalued and contributing to the economic malaise – the Japanification of Europe. If he announced lower rates or a QE buy programme, then international speculative money will pour in to buy more Spain and Italian bonds, or more European stocks – pushing the Euro higher. If he does nothing, then confidence will rock and we’ll see more of the speculative money leave Europe, easing the Euro lower. 

And that is the critical stage – that’s the moment the ECB, in conjunction with other central banks will seek to force the Euro lower. Coordinated action into a falling market will drive the Euro down. Why should other nations help?  Because Europe is such a large and important market… global recovery needs European growth. 

So here’s the Badger’s trade of the month. Short the Euro. No one else is going to tell you that so simply… 

The Badger is a shy and retiring creature… His den is hidden in plain sight in the City… but we’re not going to tell you where. Make sure to check back in next week for more of the badgers views & adventures!

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