SHORTING THE EURO

When Ted Turner compared Fox News to Hitler this week, a Fox spokesman commented that “Ted is understandably bitter having lost his ratings, his network, and now his mind – we wish him well.” It is time to feel such sympathy for other famous businessfolk who have similarly lost their minds – such as Warren Buffett.

The legendary investment guru has allowed his newly acquired left-wing politics to idiotize him. Just like Turner, he sets up an assumed liberal populism as an envy-deflection device, ends up hating America and the capitalist system that made him wealthy – and becomes a fool in the process.

To be clear: only a fool would bet long-range on the euro now. Buffet has $20 billion of Berkshire-Hathawy assets in foreign currencies, particularly the euro.

The euro is doomed. It is doomed because the EU itself is doomed. Ireland already wants out. France and Germany refuse to adhere to budget deficit caps. The only European economies going anywhere are the ex-Soviet colonies of Eastern Europe (even Bulgaria is growing at 6% now). The CIA’s National Intelligence Council just issued a devastating appraisal detailing Europe’s economic doom, observing:

“The current EU welfare state is unsustainable and the lack of any economic revitalisation could lead to the splintering or, at worst, disintegration of the EU, undermining its ambitions to play a heavyweight international role.”

Western Europe is rapidly becoming a cultural museum, and an economic backwater. As investors and currency traders overcome their anti-American emotional animus and start thinking rationally again, they will admit this – and that their “twin-deficit” arguments against the dollar hold no water. The trade deficit is evidence of our trading partners’ weakness, not ours; the budget deficit is a small and shrinking percentage of GDP.

There are, however, other arguments that don’t leak. One, surprisingly, is the Patriot Act, which has made it far more difficult to bring money in or get money out of the US. Another is the exorbitant costs of complying with Sarbanes-Oxley rules for foreign companies whose shares are traded in the US. A third is Greenspan keeping interest rates too low.

You can expect all three to change for the better this year. In fact, a lot more could change for a better US business climate. The Bush White House Office of Information and Regulatory Affairs is pushing for a major reform of the entire federal regulatory structure hamstringing the American economy. The head of OIRA, John Graham, has even expressed sympathy for the suggestion of Deere & Co. that “all government regulatory activities be privatized, including the development and enforcement of its rules” (somebody at Deere has been reading Milton Friedman!).

Naturally, the eco-fascists and “consumer activist” (i.e., Marxist) groups are outraged. “This is audacious and really disheartening,” the reaction of a “public advocacy” outfit called OMB Watch, expresses their mood. When these folks are unhappy, you know the Bushistas are doing things that will increase our prosperity.

The bottom line is that the dollar bears are not going to be able to fool themselves for very much longer – even the central bankers who have been betting on the euro recently. The smart money, in fact, has begun to short the euro. So let me make a prediction: that in five years or less, the euro will have lost 50% of its current value.

Time to regain your senses, Warren.