Twenty percent of U.S. exports head to Europe, fourteen percent to the Eurozone alone. The LTROs solved the banks; the elections are about everything else. The dysfunction trade is back on the table.
The Dow’s 8.1% Q1 ranks among its best in 128 years. But the LTROs only delayed the structural problem, and Spain may yet vote against austerity. VGK, IEV, and EWP all merit a look on the short side.
Crude is up 6% on the week, just shy of $110, with no demand-side justification. The Iran premium is real but the speculator premium is bigger. The VIX is signaling calm — possibly the kind that breaks suddenly.
The 2010 contagion assumption was a clean domino fall. What’s actually unfolded looks more like a flu spreading at random. Two ETF shorts — VGK and FXE — have already returned 16-18%, and remain in play.