Paul Legato

The Euro Exhibits Systemic Macro Weakness

In the New York Times yesterday: the Spanish are beginning to see deflation. If deflation takes hold, they will be the first to break the union. Their talk is already heading in that direction.

www.nytimes.com/2009/0...

Even if they don't actually break it, this is not a good sign for the Euro.

I certainly wouldn't touch gold - too manipulated. The USD suffers from weird problems as the reserve currency and the "flight to safety" factor - despite the massive money-printing, recall that Treasury yields were *negative* at the peak of the crisis, and still close to zero. I do not think a Euro tank necessarily implies a USD tank (though the USD might also tank for unrelated or not-directly-related reasons.)

Like I said, the other side of the trade is not clear. I don't know what will hold value well, but I am pretty sure the Euro is going to bleed it. I'd go with some kind of diversified commodity basket and maybe a few incredibly well-researched equities with amazingly solid fundamentals.

Cheers.