I owe Suzanne a trip to Italy. We were supposed to go for our 25th wedding anniversary but never made it. We have planned it two or three times since but cancelled each time for some cockamamie reason – business, family, whatever.
Our 30th anniversary is coming up this November so I better make good – and soon.
It may seem counterintuitive to think that the Euro will lose value in the next year. Especially after recent events. First, we had a crisis manufactured by the Tea Party. Once the dust settled, Wall Street realized that while we were watching the melodrama within the beltway, the economy was going in the crapper. I can’t imagine why they were surprised. All the wags have been saying that the Keynesian stimulus provided by the Democrats wouldn’t work. So, why act so startled when it doesn’t?
I can’t wait to get to Florence. It’s a city that changes the molecular structure of your body. It is among my favorite places in the world. It’s also the birthplace of Michelangelo and the home of some of his most famous works including the statue of David, housed at the Accademia di Florence. It costs €21 to get in. That’s about $31.
While the U.S. and the financial markets were in chaos, Italy was getting its act together. Silvio Berlusconi, who hangs out with hookers when he’s not running the country, announced on Friday a new austerity program that was part of a deal to get the European Central Bank (ECB) to buy Italy’s bonds, essentially guaranteeing their liquidity. Sounds like they are on the right track, doesn’t it?
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| The Amalfi Coast |
Suzanne and I are debating whether to go north from Rome or south. I love northern Italy but our families are from the south. Mine from Sicily and hers from Calabria, the toe of the boot. Maybe we’ll stay in Amalfi on the way down. We could stay at the Hotel Santa Catarina. The standard room is €360 per night. That’s over 500 bucks!
Of course, Standard & Poor’s hasn't helped by downgrading the U.S. Treasury’s issues of bills and bonds. This comes from the same folks who rated all of those mortgage backed securities AAA. Something I learned when I worked on Wall Street: you can’t fool the bond market. So, while everything has been melting down – large cap stocks, small cap stocks, commodities – the U.S. Bond was rallying. The 10 year is approaching 2% as I write this, down from a high of over 3.7% about early in 2011. Take that, S&P!
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| Fiat Seicento |
Venice could be nice but it would eliminate the trip to the south on a two week vacation. I have never been there. Friends who have, tell me it’s a two day stay before you want to move on. Maybe Suzanne is right. We should go south. The average daytime high in Calabria in May is 21. That’s Celsius. Fahrenheit is 69. Sounds delightful.
Italy’s fiscal soundness is at the mercy of the Germans. The European Union (EU) was their creation. It provided them with something Adolf Hitler couldn’t: domination of the European continent.
Of course, this fact is lost on the average German voter. The country’s Prime Minister, Angela Merkel, is trying to balance the need to hold the union together with the taxpayers’ outrage at having to bail out the fiscally irresponsible, Ireland, Greece, et al. Of course, they seem to have forgotten that their last decade of prosperity resulted from the creation of the EU. Their export-driven economy is booming because the creation of a single currency eliminated currency fluctuations that would have made their manufactured products too expensive for the Greeks, Spaniard and, yes, the Italians to buy.
Of course, the citizens of those countries had to borrow to buy. And, their banks had to buy government bonds to keep the whole Ponzi scheme going. Sound familiar?
Well, it’s all coming home to roost. And PM Merkel will have to walk a fine line to both survive politically and provide enough capital to the ECB and its new bailout fund, the European Financial Stability Facility (EFSF). Publicly, she seems to be unaware that they haven’t printed enough Euros yet. But they will. Just like the Fed did on this side of the Atlantic. So, the Euro will weaken just as the dollar has.
And, Suzanne and I will be able to stay on the Amalfi coast for a mere 300 bucks a night. Wait a minute; that’s still pretty expensive. Maybe we should go north…..
What do you think?
