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Here is a quick primer on what is actually troubling Europe. I wrote it to explain the situation to myself, and, share it with readers.
A. It is th EU – European Union
Most of Europe is part of the European Union, which has a common currency – the EURO. We are talking about the EU. Now, by joining the EU, countries have given up their right to manage their own currencies. In India, if the Govt faces a deficit, it can take loans from the reserve bank, print money or devalue its currency, to cover the deficit. But, EU countries cannot do so, since they do not have their own currencies any more.
B. So they take loans
In the good times till 2008, Ireland, Spain, Portugal and Greece had booming economic conditions, together with the rest of the world. Big spending plans were made, with a lot of money going to different sections of society. Their budgets were in deficits. To finance these deficits, the countries borrowed money from banks, mainly European(German and French) banks. A lot of this money was used in spending, for example in subsidies and such. Then came the 2009 slow down which has continued till date. Revenues fell, while spending remained the same. Soon, banks became reluctant to give more money.
C. How will the banks be repaid?
That’s the big issue. Actually, countries need to borrow continuously to pay previous loans and continue spending. Once the country cannot borrow, they cannot pay the loans already taken. Fortunately, for the Greeks that is, most of the money was borrowed from French, german and british banks, so it is these countries who are worried about the PIGS. (Portugal, Ireland, Greece, Spain).
D. What is the solution?
There are no easy ways. The rich countries of Europe insist that the PIGS balance their budgets by incresing taxes and reducing spending. Then only will the rich give money to the PIGS. This money will be used to repay the banks which belong to the rich countries. But, then, instead of the bank, the rich country will become the lender. So what is the difference? Not much. German citizens are not happy at the idea of their money being given out this way.
I have given a simplified version of the issues facing Europe. The point seems to be: there are no easy solutions to the mess. Reader comments and their views are welcome.
How to survive a bear market
from: This Blog
This is what characterizes bear markets:
• Sellers are in control
• Oversold often stays oversold for a long time
• Markets drop a lot faster than they go up
• Bear markets burn and churn accounts with long only exposure
• Volume and liquidity can dry up but price can still drop significantly
• ‘Cheap’ can get a lot ‘cheaper’
• Hope is slowly destroyed
• Vicious bear market rallies try to suck in traders to trap them
• Expect lots of gaps to the downside
• It takes a long time until market participants throw in the towel
This is appropriate trading behavior during bear markets:
• Either in cash or short
• Sell the rallies mentality
• Do NOT buy the dips
• Do not even think about going long if you are not an active and experienced trader