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Will the BRICs help save the EURO? (and what should you do about it)


Much has been written about the interminable sovereign debt crisis in Europe.
Too much, perhaps, since the endless speculation, spin, and revision (starting with Greece's own financial reporting) has become a significant part of the problem.

Let me add  one more piece.  Greece should already be in technical default.  The fact they are not, and that the CDS's have not been triggered, and everyone has not already been forced to settle up and do their reckoning demonstrates to what extent our collective tolerance for dissembling, confusion and moral turpitude has grown. 

The latest idea, that the BRIC countries will be persuaded to help increase the IMF's rescue fund to a more impressive and resonant One Trillion is the latest bit of smoke.

I've been to Brazil; still a rough, raw country where millions of people continue to live in abject poverty and the per capita income is maybe just north of $10,000, and I've worked throughout the Eurozone where the per capita income is somewhere around $40,000, not to mention the untold billions of personal wealth salted away for generations throughout the continent. Do not let the incessant hue and cry about the sovereign debt crisis fool you. Cooler heads are working diligently, reducing or hedging their holdings near worthless or risky debt and placing their bets on where and how this will all sort itself out in the end.  I would like to tell you how it will work out.  I cannot exactly, nor can anyone else, but I can tell you how it will not work out.

1. Brazil and the other BRICs will not be bailing out the old-line banks of Europe. 
2. Private commercial investors; banks, hedge funds, or otherwise, will not be taking voluntary haircuts of 70% or more, NPV,  (This is the sort of thing you only do with someone else's money... say if you were a sovereign government, ECB, IMF or some such).
3. The various proposals for self-help Ponzi schemes of leveraged lending will not effectively solve any significant part of the crisis which has been years in the making and which has deep economic and political roots.

What should you do?

If you are not one of those people/institutions who is positioned to make an intelligent insider's bet on who gets left holding the bag, you should reduce your exposure to the Euro, reduce your exposure to businesses reliant on a strong European economy and continue to be very cautious in the bets you place on this "all working out".  Sure some bad news has been discounted, and there may be money to be made.  But, to me, the bantering about the BRICs coming to the rescue is prima facie evidence that there is more bad news to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.