Will European Woes Trigger QE3, Death of Euro?
Ongoing economic trouble in Europe, including a “bank jog” on Greek banks, this week could signal a third round of quantitative easing on this side of the Atlantic, two money experts said Friday on CNBC’s “The Kudlow Report.”
“There is QE3 on the way,” said Don Luskin, chief investment officer at Trend Macro. “It’s just going to be at the June FMOC. It’s just going the happen. I don’t know what form it’s going to take, or how big it’s going to be, but it doesn’t matter because the ways of doing it are the same.”
Luskin said that especially in an election year, QE3 will happen because the Democrats need it.
One area to watch is the action in gold, especially after a terrible couple of weeks for stocks, he added.
“Gold is finally getting the idea,” Luskin said. “Gold has been going down with stocks. The same thing happened after the Lehman failure. What was the first risk asset in the world that turned around and signaled that it would eventually be OK? It was gold.”
Jack Bouroudjian, CEO of Bull & Bear Partners, took a slightly different tack.
“I advised people who were trading to not go home short this weekend, primaily because of the G8 and everything else that you just described,” he told host Larry Kudlow.
Bouroudjian reiterated the position he took in April, which was that it was time “to buy protection and walk away, not sell and walk away.”
“What I want to see is people monetize the protection and add on to the positions as the market goes down,” he said. “This action that we are seeing is much like the action we saw after the Lehman break, and I disagree with don there, although I do agree with him on QE3.”
Bouroudjian called out the wild card in the equation.
“Greece is like that drunk uncle at the dinner table that you want to leave, but you don’t want to put him in the car because you are afraid he is going to be driving home,” he said, likening it to what European leaders are trying to figure out how to handle. “One announcement by the ECB that guarantees the deposits in France, Spain and Italy would probably do a lot.”
The problem, he said, was political.
Luskin supported the idea of guarantees.
“If you had to do one thing, it’s to catalyze and underwrite the Spanish banks, and that is the issue,” he said, arguing that if the euro breaks up it’s the weaker, Iberian institutions that will be the first to go. “They absolutely need to be underwritten.”
"The Kudlow Report" airs weeknights at 7 p.m. ET.
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