In the 1970's TV show "Kung Fu," Master Po once said, "If a man dwells on the past, then he robs the present. But if a man ignores the past, he may rob the future."
Personally, as cool as that sounds, that kind of advice just leaves me baffled.
And baffled is exactly how I feel in the post-"Save The Euro" summit era as I try to decipher the reactions of all the various masters out there and whether it was a success or a failure.
"There were three important things that took place around the summit that are very important, that will shape the investment climate," says Marc Chandler, chief global currency strategist at Brown Brothers Harriman. He suggests the summit was a success, as long as you went into it with the correct expectations (Little Grasshopper).
The first major development is the decision by the ECB to provide a "practically unlimited amount of funding to the European Banks" Chandler says, adding, "I think this is really under-appreciated by the markets...the ECB basically opened up the spigots." Since he was not expecting the ECB to "backstop to the sovereign debt market" with unlimited bond or currency buying, Chandler's take away is far more positive than mine, even though his macro forecast is that the Euro is still heading lower.
While many investors are hungry for a so-called ''bazooka" action from Europe, Chandler, again, is not one them. Instead, he says the second major development to come out of last week's summit is "steps towards greater fiscal union." Chandler says despite what the United States may prefer, the talks are a "marathon not a sprint" and German Chancellor Angela Merkel is like a mountain climber.
"What she wants is to know is where you put the next foothold, where you put the next handhold, so you don't fall off the cliff," he says.
Chandler's third and final piece of Euro Summit takeaway is the bold move by the United Kingdom to essentially go it alone, as well as the reward that action is receiving in the currency and debt markets where the British Pound and Gilts "can act as safe havens."
Another small but important step Chandler tells me I failed to appreciate is the liberalization of criteria for what is considered acceptable collateral by banks. "They're accepting everything but Action Comic Books," Chandler jokes, before pointing our that a cut in the bank reserve requirement (to 1% from 2%) will also save lenders an estimated 100 billion Euros.
For all these "gains," appreciated or not, Chandler admits, "I feel confident that the Euro is still g0ing to fall, not just because of the European summit," but because, he says, the Eurozone is headed for a recession. To wit, the ECB is easing but the Fed is on hold.
And maybe it's just that simple after all, and we need to focus on what's important, as the King Fu Master used to teach us.
- Brown Brothers Harriman