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DITMo Special Commentary 6/12

Portfolio Manager Commentary

The June2012 report was delayed about a week to allow for commentary on Obamacare and EU election outcomes. SCOTUS delayed their decision until as late as 29June post the date of this report. The June Commentary will focus instead on our eristic speculation of certain geopolitical events potentially to occur imminently and considerations of these events on markets.

Present Issues & Outcome Speculations

The EU Debt Crisis is the top focus of world markets. Europe approaches solutions quite differently than the United States in that expediency and short-term solutions defer to long-term generational plans. French “Députés” elections have resulted in Socialist wins to afford unfettered 100% French control to Hollande. Greece has decided to stay in the Euro for now, though it is almost certain to expect the EU to be pared down. As a result of recent EU developments we may expect to see:

1 – We can save the European banks or save the European governments, but not both. Something has to give, and that something will be member sovereignty.

The $2.3Trillion Euro bailout funds needed will come at the expense of political sovereignty. With FISCAL AUTHORITY, the ECB could issue EUROPEAN BONDS that are backed by ECB that are in turn, backed by unlimited U.S. Federal Reserve “SWAP AGREEMENTS.” There will be an EU President, Treasurer and Bank Cross-Collateralization. It seems to be more obvious than ever that there also needs to be a FORCED CONVERSION of currency into a NEW EURO. As France recedes from leadership with Germany, Italy will emerge as the Mediterranean Euro leader; Monti is the new Sarkozy.

The offices of President of the European Council (Van Rompuy) and President of the European Commission (Jose’ Barroso) mat soon be combined into a “President of Europe” promoted by the “Berlin Group.” The EU needs a sort of modern “Charlemagne / Otto the Great” personality to unite Europe.

2 – IRANIAN Conflict. Negotiations with Russia have broken down. It seems that the path to conflict is imminent. Consider that Netanyahu formed a coalition government instead of waiting until September when he was sure to win. The U.S., Germany and Turkey recently met on these issues. Iran is the clear leader of Shiite radical movements from as far as Ethiopia, to Egypt, including Yemen, Syria and Lebanon. The one buffer nation to Iran is Jordan still reeling and distrustful after their experience with Palestinian refugees’ attempt to overthrow the Hashemite Kingdom.

Turkey would have the greatest influence over separating Syria from Iran. Germany, as leader of the EU has a great interest in ensuring [energy] stability with a permanent presence post-conflict in their EMEA theater. France has less dependence on oil with over 50 nuclear reactors in a state only as large as Texas. The key to controlling the Mediterranean and EMEA is sea gates. Malta/Cyprus are key to warm water sea gates necessary to rebuff Iranian warships moving through the Suez canal.

If there were to be an attack, it is highly unlikely that the U.S. would have any direct involvement to keep Russia and China at bay. If there were to be a conflict pre-September by an Israeli coalition government, it could be on TISH B’AV (9th of AV that is delayed this year to the 10th, Sunday that is 29July2012). Germany’s EU physical presence would be needed post-conflict to dissuade a post Israeli-raid nihilism backlash. The issue would then be European/Asian tensions.

Conclusion

From the purview of a risk manager, Europe is taking the right steps to remedy and recovery. In distinction to Milken Institute’s world view, it could be Europe that emerges to dominate economically having been forced into the proper remedies and it is they who could benefit greatly from EMEA conflict as would U.S. markets. (Pj de Marigny) *.*

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