Whatever your views on the long-term viability of the Euro as a currency, it presents far less attractive & obvious shorting opportunity for hedging the European volatility than it may appear on the surface.HT: Economic Musings
Examples of previous acute credit crises provide some guidance on future outcomes. Let's take a look at what happened to the US dollar during the the credit crisis of 2008:
For a year, leading into the credit crisis, even as it became more and more obvious that markets & the economy were quickly converging on an acute credit-crisis & financial system failure, the dollar actually declined until forecast turned into reality.
When BSC & LEH actually fell, the reversal of USD fortune was remarkably swift.
A credit-crunch is also a liquidity crunch. The supply of money contracts faster than the demand for it. There is a rush to liquidate assets to pay short-term obligation.
This conspires to create an environment in which would be very painful to short the Euro during acute phases of a credit crunch....MORE
Also at EM:
Fairholme’s Loss Aversion & The Hidden “Clean” Banks