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Adam:
I think you can look at this thing as people did when the
EMS finally was up and running: There will be rock solid
currencies an bonds--Germany and the Dutch and there will be
constantly struggling partners--The Belgians, the French and
the Brits. The normal tone for the pack of currencies [and
soon the Euro], as well as bonds, will be called around the
movement of the strongest and most constant economy. They
used to say the EMS was a dirty float or better, some small
fish swimming around the whale [so the weak and volatile
economies moving around mainly the Dutch]. That did not mean
that Dutch bonds or currency was the proxy for the rest;
simply, it was the anchor and things could only move so far
in any direction before a reckoning came.
We'll all have to watch just how tight these countries
really become as the marriage is consummated. The countries
aren't giving up their own leadership, their own currencies
or bonds--they are accepting being linked together with a
convertible currency and bond. So it will force them each to
try to stay in step [or risk falling down] with the Euro.
The proof will be if they can stay in step with the unified
ideals and still have a local economy that is healthy.
I'd say watch the local bonds and currencies as well as the
new Euro whatever and currency. It will not be as simple as
taking the DM and tacking its history onto the new Euro
currency, nor will it be as simple as taking the new Euro
bonds and tacking the Bund history on. The most stable
economy has always been the Dutch, but the best thing to do
is watch these new instruments alongside their predecessors.
If hans or any of the other European-based traders are
reading, maybe they can give us all a view from 'inside' the
new marriage zone.
Best,
Tim Morge
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