Hedge Funds and the Euro Crisis

 |  Includes: ERO, EUO, FXE, QQQ
by: Jason Schwarz

In our continued effort to gain insight into the root cause of this euro crisis, we have discovered some manipulative forces at work.

On February 26th the Wall Street Journal ran a story that flew under the radar titled, "Hedge Funds are Ganging Up On Weaker Euro." The article describes a meeting in Manhattan on February 8th attended by some of the wealthiest men in world, including the notoriously dirty player George Soros. At that meeting they decided that Greek government bonds represented the weakest link of the euro and that once a Greek debt crisis had been brought to light all outcomes would be bad for the euro. Donald Morgan of Brigade Capital made a case that Greek contagion could soon spread to infect all sovereign debt in the world, including national, state, municipal, and all other forms of government debt. This would mean California, the UK, and the US itself, among many others.

These hedge fund managers are ultra intelligent. They find weakness and exploit it to their advantage. If that’s all they did than I would call it fair game and move on. The problem is the media manipulation. In the current crisis the PIGS know exactly what is happening with these bear raids and have taken measures to stop it. Have you noticed what happens every time they take action? Spanish Prime Minister Zapatero remarked that Spain was dealing with international speculative attacks and was mocked in newspapers throughout Europe. Wall Street paints the Greeks to be a nation of conspiracy theorists. The day that Germany announced a ban on naked short selling the markets plunged as the media interpreted the move as a sign of weakness! Any action taken against this group of powerful hedge funds is manipulated in the media to be further proof in their favor.

Knowing that hedge funds are at the root of this crisis leaves us to assume that this market correction is the gift of 2010. The fundamental weakness of Greece is so small that it is insignificant on the global stage. Everything that the hedge funds had hoped would happen has not come to fruition. The European Union has exceeded all expectations with their unified response to the crisis. They have made it 100% clear that they are willing to do whatever it takes for the euro to continue. With this Sunday’s finale of the hit television series Lost, I think it’s appropriate to use the popular phrase from Jack, ‘We can either live together or die alone”. Germany and France would lose global credibility and power if they lost the support and size of the union. Even the United States wants to help out. Tim Geithner will be meeting with EU leaders next week to see what the US can do to help. In today’s global society nobody wants to see a double dip of the global recession.

We are buying a mixture of Apple (NASDAQ:AAPL), Baidu.com (NASDAQ:BIDU), QQQQ, Ford (NYSE:F) and a few other stocks on this opportunity. With these purchases we will, however, use a quick trigger to sell if the market once again loses its momentum on fears of contagion. If that perception creeps back into the market this will turn from being the biggest gift of 2010 into the biggest disaster of 2010. Let’s watch to see which way the market tips...

Disclosure: Long AAPL, BIDU, QQQQ, F