In recent experience, any report that shows Germany's economy faltering has been bad for the euro,

This is more a case of investors pouring money into the Japanese economy than a case of investors scooping money out of the U.S. economy, ... The dollar is weak against the yen, but strong against almost all other currencies, which suggests to me that it's speculative money flowing into Japan.

If the euro does tumble again -- and we think it will -- we must expect the ECB to orchestrate another round of currency intervention.

All this mayhem is very similar to what we have seen in Latin America and in Asia in recent decades. It is driven initially by inflation. This is what China must act to contain. So far, it has not. So the odds of a hard landing remain high.

This is why Europe is still an unattractive venue for offshore investors, and why the euro is as cheap as it is.

Rising inflation will prove to be the starting point for the undoing of the domestic economy.