Good morning, it's Paul here.

I rambled a bit off topic last night in the placeholder (Tuesday is stroll along the beach, followed by pizza and beer night), but seeing as it has 56 thumbs up this morning, I'll leave it in place. Sometimes I like to spice up the placeholder a bit!

In case you missed it, Graham kindly emailed me a piece about PCF (LON:PCF) after noting some reader requests here. So I copy pasted that into yesterday's report here. Apologies, but I didn't get round to looking at McBride yesterday. There seemed little point, as the markets were in freefall at the time, but later recovered in the USA with a strong late rally.

I see the American markets are all over the place at the moment - volatility is back.  I've no idea what's going to happen to markets overall. All I can say is that I'm seeing some potentially nice buying opportunities in UK small caps - good companies, reporting decent figures & outlook, that are now 20-30% cheaper than they were a few months ago.


Eurozone crisis

On the other hand, I can understand people being worried about macro factors. To me, by far the biggest worry right now is a potential breakup of the Euro. The so-called single currency is of course, not a single currency. It's actually 20 different Euros, pegged at parity.

All currency pegs eventually snap, because economic imbalances build up over time which make artificial currency pegs impossible to maintain. The Euro is no different to the Gold Standard, Bretton Woods, or the ERM. It's only a matter of time until it breaks.

The capital flows under the Target2 system look close to breaking point. I'm not an expert on this, but I can see a big problem is emerging. 10 times the size of the Greek Eurozone crisis, as Italian national debt is over E2 trillion - although much owned domestically, apparently.

Who knows how it's all going to pan out? The EU has a knack of cobbling together temporary fixes for these problems.

My worry is that, if/when the Euro peg snaps, then 20 years of economic imbalances would instantly reset. So the Greek Euro would instantly devalue maybe 50%? The Italian Euro might devalue say 25%? The German Euro would revalue say 30%.

That…

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