Analytics
The best Experts' Views, Marks and Forecasts on Economics >>
-
24 August 2011
Europe’s in Crisis But Axel Merk Remains Bullish on the Euro
finance.yahoo.com Financial markets were relatively calm Tuesday but all is not quiet on the Western front.
In Germany, investor confidence plummeted to the lowest level since 2008 on the heels of a nearly 25% decline in the DAX in the past four weeks.
Meanwhile, funding costs for European banks continue to rise while credit default swap prices have double since April, Bloomberg reports.
In addition, Greek 2-year note yields were re-approaching their all-time high levels despite myriad bailout efforts by the ECB and IMF.
Nevertheless, the euro was rallying vs. the dollar, and is expected to keep rallying into Friday's Jackson Hole conference. The euro continues to defy renewed speculation the single-currency is not long for this world. "The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system," former Fed Chairman Alan Greenspan said today in Washington, Bloomberg reports.
There's plenty of problems in the eurozone but the euro's relative strength makes perfect sense to Axel Merk, president of Merk Investments and manager of the Merk Hard Currency Fund, which is the top-performer in its class for the past 3- and 5-year periods, according to Morningstar.
"People need to cut to the chase and see important steps are taken place" to address Europe's debt crisis, Merk says. "As a result, less money is being spent and printed in the eurozone and we believe the euro can thrive in this environment despite what everyone else is saying."
To be fair, there was some good news from Europe Tuesday, as German PMI beat expectations and Spanish borrowing costs fell as it sold 2.9 billion euros of bills.
But Merk is not Pollyanna about the situation in the EU.
"We believe this crisis is very real [and] won't be over tomorrow, next month or next year," he says. "There is no silver bullet."
Still, Merk takes solace in the efforts being undertaken in Europe both at the sovereign and individual bank levels. While "ugly, chaotic" and painful in the short-term, he believes this process will put the eurozone on steadier footing and bolster the euro.
The euro looks particularly good to Merk relative to the dollar as he sees few signs the U.S. is seriously tackling its long-term deficit issues. Thanks to the Fed's efforts, Treasury rates are artificially low which is giving U.S. policymakers a reprieve from making tough choices.
While the Fed continues its policy of money-printing and quantitative easing, "the eurozone is on the other side of the trade," he says. "Printing and spending less money will cause a lot of pain but it will give you a stronger euro. "
