The Inherent Impetus Of The Euro's Return In The Medium And Long Term

In most dimensions, the existing information indicates that the European sovereign debt crisis is less than the last one in the US subprime mortgage crisis. It is believed that the euro is about to collapse. It may be as biased as the US subprime mortgage crisis before that the US dollar will go to the end.

The European sovereign debt crisis is going to the middle point rather than the endpoint. Short-term factors may also constrain the equilibrium return of the euro exchange rate, but the strength of equilibrium will make the euro return to the position of the second strong in the international monetary system in the medium and long term.

When the Shanghai Composite Index flew from 3180 to 2480, and the euro fell from 1.50 to 1.22 against the US dollar, there seemed to be only one voice left in the market: the bear market was not at the bottom, and the decline was endless. At this time, "when the sun was stationary at first, and the earth revolved around the sun, human attempts had claimed that this theory was wrong; but as the philosophers know, the old saying" the voice of the heavenly bodies is an ancient saying which can not be believed in science ". Darwin's warning words in" the origin of species "jumped into my mind from time to time.

Buffett is very much like Darwin's confidant. The stock god has a well-known saying: "when others are greedy, I am afraid, I am greedy when others are afraid." Then, is Darwin and Buffett wrong? In my view, we are wrong. No matter when and where, the trend is always the best way to remain invincible, and the core of the trend is to grasp the trend. Darwin and Buffett's extraordinary is precisely a way to teach people to grasp the trend of inflexion in uncertainty.

In my opinion, the master seems to be vaguely saying: when most people are afraid, choosing fear is wisdom, and when everyone is afraid, choosing fear may be stupid. So the next question is, why should we take the "market knowledge from partial consistency to complete consistency" as the basis for identifying the inflection point of the trend?

This inflection point recognition method appears to be a psychological problem at first glance, but it is essentially a complex problem of mixed psychology in economics. It is often very difficult to reach consensus on the financial market because the market is concerned about the short-term, medium-term and long-term concerns. Even if the market is in a downward trend in the short term, some economists and analysts who focus on medium-term trends and long-term trends will not soon give up the judgement of the medium and long term trend. People who are trained in rigorous economics will always have a "balanced" existence.

Only when the short-term unilateral trend breaks through the "equilibrium line" in a clear and penetrating way, the psychological mark on the line of defense in the sense of economics has been breached. The "quantitative change" of short-term factors has quietly led to the "qualitative change" of the medium and long term factors.

However, in fact, the medium and long term factors are not so easily affected by short-term factors. When all of us are in panic, it is precisely when a few of the middle and long term tendencies give up their positions that they tend to deviate greatly from the "equilibrium level". A possible scenario is that once the strong short-term disturbance is gradually dissipated, the strength of the balanced return will reverse the unilateral trend of one word and witness the miracles of Buffett with sudden inflection points.

Since last March, the financial tsunami triggered by the collapse of Lehman brothers has gradually entered the subsiding period. The US dollar index, which was pushed up to more than 89 points in the financial tsunami, has also entered a long way down. When the US dollar index dropped to 74 in November 2009, almost everyone thought that the curse of the financial crisis on the US dollar was gradually appearing, so that a very few words that said the US dollar strengthened were regarded as the fearless performance of the ignorant. When equilibrium theorists doubt the equilibrium itself, it may be the time when equilibrium is about to show power. In fact, the US dollar started a new round of upward trend since November 2009. From 74 to 86, it only took less than 9 months.

Of course, the recent rise in the dollar in recent six months, especially in the past month, is not just the strength of the dollar's return to equilibrium. The return of the US dollar to a greater extent corresponds to the decline of the euro. More than 8 months ago, the euro was 1.50 against the US dollar. At that time, most rational analysts in the market were predicting that the euro would go to 1.55 or even 1.60 against the US dollar. Now the euro is 1.22 against the US dollar, and even the opinion makers are high-profile forecasting that the euro will return to the 1:1 against the dollar.

Listening carefully, the market voice has changed from noisy mixing to clear monophony again, that is, the euro will continue to fall. In my view, this may be a sign that the euro exchange rate is approaching or even below its "equilibrium level". Unfortunately, the author has not yet worked out the deviation direction and deviation extent of the medium and long term equilibrium exchange rate and real exchange rate of the euro from the multidimensional variables such as real economy growth, monetary policy and price level. However, members of the European Central Bank's management committee recently said that the euro was very close to the fundamentals level, which may be the conclusion after calculation.

However, from the perspective of economic comparison between the US and Europe, the euro and the US dollar have the internal driving force to strengthen again in the medium and long term. On the one hand, from the comparison of quarterly growth rate, the US economic cycle generally leads the euro area to one to two quarters. In the third quarter of last year, the US economic growth rate was "positive from negative to positive". After the two quarter, the euro area has also entered the recovery from recession. This stage the US economic recovery trend in Europe has laid the material foundation for the US dollar strength; and according to the published data and market forecast for future data, the US economic growth rate will fall two times in the first two quarters of this year, while the euro area economic growth rate may gradually increase. On the other hand, comparing the annual growth rate, according to the statistics and projections of IMF, the US economic growth rate from 2009 to 2010 is -2.4%, 3.1% and 2.6%, and the euro area's economic growth rate is -4.1%, 1% and 1.5%. It is obvious that the recovery rate in the US is stronger than that in Europe in 2010, and the intensity of recovery in Europe will continue to increase, while the US recovery will weaken. The trend of the shift will probably lay a foundation for the long-term trend of the weaker and stronger exchange rate between the euro and the US dollar in the period from 2010 to 2011.

How the European sovereign debt crisis will evolve is obviously another topic. But in most dimensions, the existing information indicates that the European sovereign debt crisis is not as hard as the last one of the US subprime mortgage crisis. Then the market should be convinced that the subprime crisis is over and the European sovereign debt crisis will pass. Because of the short and medium-term impact of the European sovereign debt crisis, the euro is about to collapse. It may be as biased as the US subprime crisis before the dollar will go to the end.

The European sovereign debt crisis is going to the middle point rather than the endpoint. Short-term factors may also constrain the equilibrium return of the euro exchange rate. But in the medium and long term, the euro will not disappear. This is another topic. The author has done rigorous research on European monetary integration from the exit cost dimension. The conclusion is that the cost of European monetary integration reversal is far beyond the euro zone's tolerance, and it will not collapse. The equilibrium force will return the euro to the second strong position of the international monetary system.