Tuesday, January 24, 2012

Ridiculous European Debt Crisis Solution Cycle

David Einhorn is one of the most successful long/short equity hedge fund managers of the past decade. He is the manager of  4,6 Billion USD Greenlight Capital which has "returned 9.7% during the last quarter of 2011 with  net returns for 2011 is 2.9%. This is the 13th consecutive year Greenlight Capital managed to outperform the S&P 500 index.[1]

In the Greenlight Capital’s Q4 2011 investor letter, the comedy of European Debt Crisis repeated again and again in the last 1.5 years with the exact manner is depicted very good:

"The cycle looks like this: The time passes and the crisis deepens. Markets, eternal creatures of habit, begin to reflect the ensuing fear. Then, just as things appear to unravel, there is a reprieve, as red headlines race across the screen: "Sarkozy and Merkel to Meet at Deauville", "Obama Phones Cameron", or "Christine Lagarde Waves From Bus". The market jumps. You'd think the media would quit falling to this charade, but having run out of clever headlines to describe the impending doom - 'Eurogeddon' Really? - they herald every briefing, meeting, assembly, and conference.

The market embraces these announcements as eagerly as the media, behaving as if any and all communication is equally constructive, and likely to yield any solution. The market continues to rise until the day of that summit, as all ears await a Grand Communique. Within minutes of any proclamation, the market may cheer with a final, celebratory spike. Upon evaluation of the actual statement, it becomes clear that either nothing has truly been agreed upon, or that the plan is insufficient, impractical, or just won't work. The market sells off and the crisis deepens some more. Lather. Rinse. Repeat.

Source : Greenlight Capital Q4 2011 Investor Letter

Doing whatever it takes(!) and solving nothing - European Debt Crisis Cycle of 2010 - 2012

And again and again everyone is looking at these leaders for the solution, the guys who ridiculously repeat the same useless words, "do whatever it takes". This whatever it takes "seems to include everything except making necessary sacrifices that might actually solve the crisis".

The letter says that "2012 may be the year in which currency crisis will no longer be kept at bay by politicians buying time with empty promises" and "maybe the fall of Euro will be the 2012 catastrophe that Mayans predicted".

Some must reads to understand the dynamics of current and upcoming financial crisis:
This Time Is Different:
Eight Centuries of
Financial Folly
Endgame: The End of
the Debt Supercycle and
How It Changes Everything
The Theory of Money and Credit

[1] - Greenlight Capital Q4 2011 Investor Letter

No comments:

Post a Comment