EU fatalists put Dow 8,000 back in play

The Germans appear resigned to an eurozone collapse, and they'd rather let the market dictate the destruction than risk hyperinflation.

By Jim Cramer Nov 18, 2011 10:54AM

the streetThere was always an assumption that the Europeans would do what is necessary to preserve the banks, the union and the countries that are a part of it.


The assumption seems to be unraveling before our eyes.


The unraveling makes more sense than the containment, even though the consequences are unfathomable. That's because, in fits and starts, we are seeing a simple outline of the German point of view: The European Central Bank has no ability to control the finances of any country and it has no ability to tax people to finance the printing presses, so what is the point of trying to save the system?


The fatalists seem to be taking over. What's the fatalist game plan? Let the markets take care of themselves and let's see what happens.


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The Germans are the fatalists here. They now think the printing presses lead to Weimar-style hyperinflation no matter what, and given the lack of fiscal austerity in the countries' finances that they would be papering over, you can see their point. The fatalists would rather have destruction of capital by deflation than by inflation.


The fatalists think this because they now know that destruction is occurring either way. To them we have moved past the point of no return. To the fatalists you can get out of a no-growth, no-discipline environment in two ways: printing presses or collapse of the institutional framework of sovereign debt and those who hold it -- talk about a Morton's fork. They are going for the latter. They would rather have a collapse of the system at the hands of the market than a collapse of the system under hyperinflation.


So here's where we are. If the fatalists win, we have to go back to Dow ($INDU) 8,000, where I feared we would go when the fatalists looked like they might win at the end of September.

If the fatalists lose, we can hold it together and muddle through here, although their currency will go down to parity and their problems will be worked out over time in a way that transfers wealth to the poorer nations in return for risk to the wealthy, which the fatalists have decided is too unpalatable.


Thus in one fell swoop of a Spanish bond auction, the fatalists are making it known that they would rather choose the unknown of the market than the known of hyperinflation. The idea that they could bring down the Western world of finance -- even if it is just for six months as everyone adjusts over here and whole nations get crushed there -- is appealing to them. Because the fatalists know it is going to happen anyway, so they would rather just get going with it.


I think the fatalists regard both paths as potentially suicidal, but in the "let the market decide" option, they have a better chance of coming back faster from the apocalypse than by letting the central bank print money it doesn't have. They recognize the problem is too big and too out of control to do anything else.


Looks like Angela "Lucy" Merkel has taken the ball away for good and told Charlie Brown to go home. It didn't have to be this way. The Europeans had their chance. To the fatalists, they blew it.


And now we all have to suffer, with the U.S. coming out of it down the road, and maybe the Germans, while the rest are left to fend for themselves. Triple-AAA preservation for the French?


Triple-BBB destruction is more like it.


The fatalists have put Dow 8,000 back on the agenda.


Let's hope, if they win, it holds.


jim cramerJim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.


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