OSCILLATING CURRENCIES: Cash-is-king mentality may not work

FOR two years, Greece has, as one might say, held a gun to the head of the global financial system, and now in the eleventh hour, Germany is holding a loaded gun to Greece's head.

On Wednesday, Germany's central bank called for a suspension of financial support to Athens, while eurozone finance ministries duly agreed to draft contingency plans for a Greek exit from the euro.

Explosive times indeed. Armies aren't being lined up in the borders yet, but if wrong bets are placed, a financial collapse is more than a probability.

After that, who knows what will happen. Will there be a blame game on why the European project did not pan out as planned, or why the European dream turned out to be a painful one?

Perhaps it's time to dust off the old rockband R.E.M.'s music CD, and start playing over and over again: It's the end of the world as we know it!

The experts warn that a Greek exit will lead to untold consequence, and panic, including for those a safe distance away from European shores.

France's Societe Generale estimates a Greek exit could mean more than US$1.1 trillion (RM3.49 trillion) in loan and currency losses in the US and Europe.

The domino effects will be credit defaults, investors lining up to take their money out of banks which they feel might not stay solvent, joblessness, and steeper borrowing costs.

Already in Spain and Italy, the jobless rates are worrisome. The unemployment rate in Spain is more than 24 per cent, while in Italy, which is suffering its fourth recession since 2001, the rate is almost 10 per cent.

Can Asia face double- digit unemployment rates for a prolonged period where social security rights are not so ingrained?

Against this backdrop, it's surprising the eurozone now has second thoughts on the implications of a Greek exit, claiming a Greek withdrawal would be disruptive but "manageable".

This is a world apart from what Greece's radical anti-austerity leader Alexis Tsipras would like us to believe - that Europe would not dare pull the trigger.

Either way, we could be getting closer to the straw that broke the camel's back, with either Greece getting its way, Germany walking out of the eurozone or Greece being shown the door, and with real efforts being made to save Spain and Italy.

Chances of Germany leaving its beloved European Union or the euro, for the nostalgia of the deutschemark is remote.

A German exit will lead to a weaker euro, which is good news for the rest of Europe.

A strong deutschemark will, however, be bad for the German export machine.

So, is it safe to say that the two-year long game of poker will reach its climax sooner rather than later?

Don't be surprised to see equity markets after the impending steep drop building a base from the aftershocks.

This of course is all based on anticipation that a solution to the euro problem is just around the corner.

A few weeks ago, when the markets were on the go, I wrote that stocks might take a turn for the worse.

Many anticipate the bear will continue abusing the bull, but don't be too shocked if the tables are turned around.

With currencies poised to oscillate due to the euro problem, the cash-is-king mentality might not work out for the modern-day investors.

Gold and then equities (the longs and the shorts) look like the next safe bet.

Am I correct? Time will tell, though I take comfort in the knowledge that the last book I recall reading in my hazy, lazy university days was Edward de Bono's "I Am Right You Are Wrong".