What happens when the Euro goes kaput

[FarmerD]

Regarding the Euro, it's getting hard to separate the truth from the hysteria. My view is that the weaker more highly indebted countries like Greece, Italy, and Spain will inevitably go bankrupt no matter how much other Euro countries try to prop them up.  If those countries leave the Euro, is there any reason for the Euro to even exist?  My understanding is that Germany, and to a lesser degree France, wanted the Euro as a way to keep the weaker economies of Europe from devaluing their currency to better conpete with Germany/France.  With the weaker countries gone and free to devalue, the whole point of the Euro is gone.   

How does this affect the PP?  Would this lead to a roller soaster ride for our portfolios?

If the Euro looks like it's going away, wouldn't all europeans quickly dump all their Euros and buy something safer like dollars (US bonds) or gold.  Could this end up in a hyperinflation scenario (for Europe anyway) and for us cause 30 years treasuries to plummet to near 0% and gold to rise up 50% for example.  I assume US stocks would tumble. 

I imagine the Euro countries would quickly set up their own currencies again so would that mean everyone would then flee back to European currencies causing gold to plummet and treasuries to rise dramatically?  Why?  Well, at this stage, most countries would have relatively strong currencies compared to the dollar (the debts of Italy Spain, etc have had their debts have been wiped out, Germany and France are relatively strong fiscally). 

In the end, I think we see wild swings in the various componenets of the PP.  Overall we should do OK. 

[moda0306]

What I've heard is the other way around.... Germany will leave the Euro.

But I really can't offer much input on the subject of how to untie this knot.

[AdamA]

Overall we should do OK. 

I agree.

One thing I would do, however, would be to make sure that your cash is as safe and as liquid as possible.  I could see more MF Global type situations going forward.

[moda0306]

Hold gold physically... buy bonds directly.

Adam has the right idea with MF Global.

If you think about it, you are relying on two groups of people to make sure your TLT and IAU remain valuable.... the Federal Government (regulating and enforcing the derivative contracts that drill down to your real wealth), and Wall Street (drawing up the derivative contracts fairly and securely).

Do you really trust those two groups with that?

I'd also add that we accept this with stocks, but investing in LT treasuries and gold is supposed to be the antithesis of trusting other people with your wealth.  The only reason we trust the gov't with LT treasuries is because they issue the currency with the flick of a button and would be utterly foolish not to oblige our bond redemptions.

Putting various layers of market-players in between us and those assets is, in many ways, completely illogical, and is completely missing the point of the pillars of protection the PP can offer if done 100% right.

I say this as I own TLT and IAU... so I'm hypocritical... but I'm in the process of developing my comfort with direct purchases of those assets.

[MachineGhost]

How exactly will you get secondary market gains on any 30-year T-Bond appreciation at Treasury Direct?

MG

Hold gold physically... buy bonds directly.

Adam has the right idea with MF Global.

If you think about it, you are relying on two groups of people to make sure your TLT and IAU remain valuable.... the Federal Government (regulating and enforcing the derivative contracts that drill down to your real wealth), and Wall Street (drawing up the derivative contracts fairly and securely).

Do you really trust those two groups with that?

I'd also add that we accept this with stocks, but investing in LT treasuries and gold is supposed to be the antithesis of trusting other people with your wealth.  The only reason we trust the gov't with LT treasuries is because they issue the currency with the flick of a button and would be utterly foolish not to oblige our bond redemptions.

Putting various layers of market-players in between us and those assets is, in many ways, completely illogical, and is completely missing the point of the pillars of protection the PP can offer if done 100% right.

I say this as I own TLT and IAU... so I'm hypocritical... but I'm in the process of developing my comfort with direct purchases of those assets.

[rickb]

How exactly will you get secondary market gains on any 30-year T-Bond appreciation at Treasury Direct?

You track the current value in the secondary market.  To sell (either because the LT treasury allocation is over your upper rebalancing band or because the bonds have "only" 20 years left), you transfer them to a brokerage to sell them.

[Jan Van]

What I've heard is the other way around.... Germany will leave the Euro.
...

But what about all the debt they own of countries like Spain, Italy, Greece. If Germany leaves the Euro they guarantee themselves that those are a lost cause. The German banks will go bust. So they need to stay in and keep those countries in too, and somehow force them to pay their debts, for as long as possible...

[murphy_p_t]

How exactly will you get secondary market gains on any 30-year T-Bond appreciation at Treasury Direct?

You track the current value in the secondary market.  To sell (either because the LT treasury allocation is over your upper rebalancing band or because the bonds have "only" 20 years left), you transfer them to a brokerage to sell them.

RickB...it looks like you're doing this...have you sold LTT this way...has it been a simple, timely process for you?

[rickb]

How exactly will you get secondary market gains on any 30-year T-Bond appreciation at Treasury Direct?

You track the current value in the secondary market.  To sell (either because the LT treasury allocation is over your upper rebalancing band or because the bonds have "only" 20 years left), you transfer them to a brokerage to sell them.

RickB...it looks like you're doing this...have you sold LTT this way...has it been a simple, timely process for you?

Nope, haven't personally done this.  My LT bonds are in tax deferred space (a Fidelity 401K account), so Treasury Direct is not an option for me.  Perhaps somebody else who's actually sold bonds from Treasury Direct could comment?

[WildAboutHarry]

Perhaps somebody else who's actually sold bonds from Treasury Direct could comment?

You can no longer sell through Treasury Direct.  You must first transfer to a brokerage and sell through that account.

[stone]

What I've heard is the other way around.... Germany will leave the Euro.
...

But what about all the debt they own of countries like Spain, Italy, Greece. If Germany leaves the Euro they guarantee themselves that those are a lost cause. The German banks will go bust. So they need to stay in and keep those countries in too, and somehow force them to pay their debts, for as long as possible...

The crazy thing is that since Germany is anyway bailing out the German banks via bailing out Greece etc, they might as well leave the Euro and then bail out the Banks directly (given that they seem to want to not just let them fail).

[Jan Van]

But if Germany leaves the Euro, goes back on the DM, then the DM will be worth much more, and exports will get hammered. BMWs, Mercs and VWs will be much more expensive. So better to stay in and keep it together as long as possible...

[stone]

Jmourik, Germany did OK before the euro. If they really wanted to be mercantilist they could use Deutsch Marks to build foreign currency reserves as China and Japan do. Alternatively they could weaken the DM by buying Greek debt with new DM and so help Greece out in the process .