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Watching the Balloon Fade Away


Question of the Day
There are ten days left before the Euro faces certain doom according to most observers. Tell me what you think.
  1. The Euro should be saved by Europeans only
  2. The Euro should be saved with America’s help
  3. The Euro should be allowed to die it was a bad idea from the start
I love hearing from you and yesterday there were great responses. Take the poll at or touch base with me with deeper thoughts at

A new rumor popped up yesterday that S&P has given France 10-days to get its act together or lose its AAA status.  The clock is ticking for the entire Euro experiment, which has been like watching a leaky hot air balloon come back to earth in excruciatingly slow motion.  This freefalling action has been remarkable in the sense it never seems to reach terra firma.  It’s like the earth keeps getting moved back even as the crisis speeds up past the point of terminal velocity.   Even with that in mind, there has to be a collision, and it feels like it could happen before the year is out.

The question is how hard this landing will be and could it knock the entire planet off its axis?  Keep in mind we are bracing for a hard landing to this crisis.  The best case scenario for the market would be a deal that sees more dramatic austerity in France and a bigger chunk of money from Germany and other players including IMF, ECB, and United States.  Most economists, however, have already said the fall has come too far to be softened up enough for survival.  It’s seriously confusing, but when numbers like $1.0 to $3.0 trillion are tossed around, it seems daunting.  This freefall and eventual landing would have to violate the laws of gravity and economics.

Throughout history, man has retooled theories and understanding about gravity and motion.  For centuries, the Aristotelian theory of motion ruled until debunked by Galileo in the early 1600s.  Whether his eureka moment on free falling motion occurred while conducting experiments from the Leaning Tower of Pisa, one thing is for sure, a greater understanding of gravitational pull and laws that govern it were established.   Then understanding was taken to yet another level when Newton, who admitted to standing on “the shoulders of giants,” published his Second Law of Motion in Principia Mathematica Philosphiae Naturalis in 1686. In Newton’s most notable formula, the relation is simple:

                                             F = M•A

This states that force is equal to mass multiplied by acceleration; it deals with changes of velocity, and how to measure it.  Now, Newton’s theory is being challenged by not-so-giant politicians that fed at the trough too long and now are stumbling toward resolution.  It just a matter of how harsh that resolution would be.  The irony is that attempts to soften the blow over the years have added to the current acceleration toward a disaster that could indeed be massive. 

It’s actually incorrect to use the term free falling, although it does mean rapid uncontrolled decline.  In physics, it goes back to Galileo and a controlled speed that most items would hit the ground given no outside forces, like parachutes.  That speed has a limit, terminal velocity, which can be reached in eight second, and for skydivers’ that means a max speed of 122 mph. Skydivers, however, sometime go into free flying mode where they become aerodynamic and plunge to earth at speeds that can reach 200 mph.   Lately, not even that speed is fast enough to describe how rapidly the European crisis is barreling toward its conclusion. 

Surviving the Fall

Would you like to ride in my beautiful balloon
Would you like to ride in my beautiful balloon
We could float among the stars together, you and I
For we can fly we can fly
Up, up and away
“Up up and away”
Fifth Dimension

So, we wait and brace for the worst

I read a piece by Cecil Adams that notes the free-fall speed record was set in 1960 by Joseph Kittinger, who stepped out of a balloon gondola into exceedingly thin air at 103,000 feet, enabling Joseph to fall at 614 mph.  Today, Europe is that gondola and socialism that balloon and 103,000 feet the height of debt owed for decades of lavish living on borrowed funds. 

So, we wait and brace for the worst.  For humans a fall from 25 stories is 99.9999% fatal, although there have been exceptions.

> In 1963 US Marine pilot Cliff Judkins parachute didn’t open after bailing out of his plane, he survived the 15,000 feet plunge into the Pacific, although he suffered many broken bones and a collapsed lung.

> US Army Air Force sergeant Alan Magee fell 20,000 feet from an exploding B-17 in 1943 and crashed through a skylight of a French train station.  Magee lived suffering only a shattered arm.

> Soviet lieutenant I.M. Chisov fell 22,000 feet into a snowy ravine and lived.

> RAF flight sergeant Nicholas Alkemade jumped from a burning bomber plane in 1044 without a parachute falling 18,000 feet crashed through tree branches in a pine forest and landed in 18 inches of snow.  He limped away with scratches, bruises, burns, and a twisted knee.

All those lucky stories listed above had landing in common, something to break the fall.  Of course it was still painful, but snow, branches, skylights and ocean waters made survival possible.   What can cushion this upcoming crash?  One myth is a person falling from high places will faint or even die before landing.  While that can happen, it’s not a given, and yet one has to wonder if all parties involved in this European crisis have had their eyes closed until this summer?  I suspect the only thing that will soften the blow and maybe make survival possible is a pile of cash. 

But unless these politicians commit to dramatic spending cuts, which would take them out of free flying mode into free falling mode, no amount of cash can make a difference.   The market is bracing for a thud, whether Europe will walk away or not remains to be seen.  It is odd to watch this play out in real time.  It feels surreal, and yet, it’s a disaster heading toward earth like a man that fell out of a balloon 103,000 feet in the air.

Central Banks Cushion the Fall

Mortimer Duke: Now, you listen to me! I want trading reopened right now. Get those brokers back in here! Turn those machines back on!

It doesn’t hurt to have all the printing presses in the world swinging into action to flood the world with liquidity.  The Central banks of America, Canada, Japan and England join the Swiss national Bank to spur liquidity in US dollars.  The dollar plunges and stocks fly in the premarket. 

Economic Data

After a couple of years of downplaying the ADP employment report, the street is praying their data will be a great harbinger of the BLS number on Friday.