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DiceMagic (< 20)

As happy as PIGGS in muck



April 29, 2010 – Comments (0)

There are a couple of old sayings from the North of England, one "as happy as pigs in muck" meaning to be very happy in ignorance of your position and two "Where there's muck there is brass" which means there is money to be made in the worst environments. The sayings sprung to mind this week as more bad news and opinion spread concerning the Euro.

I have to admit I was always a great fan of the Euro... I advocated that the UK join it, I'm so glad that we didn't, if the rules of Euro membership were followed the UK would have not been able to build such a ridiculous level of Government debt and we wouldn’t have suffered the 25% reduction in the value of the pound, the hugely inflationary consequences, the soon to be record levels of interest rates and the swingeing cuts in government services. As it happens the “rules” as much as they are for Euro membership have been completely ignored and as in the Greek case they may have been economical with the truth about their finances in order to join. So as much as the Euro seemed like a good idea; there has never been a successful Currency Union without a Political Union. The temptation to cheat on the rules of membership is just too great to resist. Is the demise of the Euro imminent? No not really; the Euro will continue on but in a reduced value. With fewer members, it’s clear that the Germans want Greece out of the Euro.  And the Euro will no longer be touted as a candidate for the new global reserve currency. Opec didn’t like the dollar as a currency because of its fall in value and I guess they wont want to swap to the Euro for very much the same reasons. Euro members for the last five or ten years have been pigs in muck.

The politians will blame the demise of the Euro on the markets, when the truth is that if everyone had played by the rules of membership the Euro would be healthy and its member states in ruder health to withstand the credit crisis and depression. A short while ago I looked at the future of the Euro based on the Greece experience. I postulated at the time that the bond markets would pick off the weaker over indebted Euro countries one by one (it’s what markets do!) until there might only be France and Germany left in the Euro see here 

I’m not saying I told you so, but whilst there is new like this from Bloomberg being touted around there is little to be optimistic about the Euro. The associated video from Ian Stannard is equally dismissive of the Euro. The logical extension of his statements is somewhat alarming he clearly sees trouble ahead for the Euro.

The GB Pound is potentially in a worse state of affairs. Our general election looks almost certain to end in a hung parliament. The third placed party (Liberal Democrats) will demand a change to proportional representation to support a government. The right of centre Conservative party will almost certainly look to grant independence for Scotland and Wales to ensure that the mostly socialist (Labour) voting Celts are disenfranchised from Westminster. The bond market will demand more for UK government debt. The UK will end up with a mini Euro…. three independent countries all using the pound or perhaps even Wales and Scotland will join the Euro. It will be an incredibly destructive time for the UK. Perhaps even election after election after election as the three parties try and fail to form a cohesive government.

My philosophy has always been that the means of wealth creation is the efficient application of capital and labour. Gold is not and never will be anything other than a metal that used to lie around the earth’s surface until we collected it all and make it into coins. Gold in its self will never produce anything, will never pay a dividend from profits, will never provide labour and will never farm food for a table. It is as useless economically as the printed paper we call money. It is and always will be a zero sum game holding gold – as my gold's value increases somewhere someone holding dollars, pounds or Euros is loosing money, and that does not count as efficient wealth creation. But this ugly arrangement is the muck in which there is brass to be made.

When I bought into gold 4 years ago I was there as a short term strategy. My idea was to be in the best currency hedge whilst things sorted out and then I could start some proper investing. And yet 4 years on I see no place I’d rather be, my advice to all Fools everywhere is hold some gold.

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