Best News for You

Investors simply do not understand the significance of Greece. Comparisons are being made to Lehman, but these comparisons are moot for the following reason: Greece is a country not a private institution.

This is not a subtle difference. True, Lehman's derivatives were spread throughout the global financial system just as Greek sovereign debt is. However, investors are missing the true scope of the fall-out a Greek default would create.

First, let's think about Lehman. When Lehman went under, half of the other institutions that were in trouble had already been merged with larger entities (Bear Stearns, Merrill Lynch) or had been nationalized (Fannie and Freddie). Those that were still standing after Lehman went under, changed to bank holding companies (Morgan Stanley, Goldman Sachs) in order to receive special access to Fed lending or were nationalized (AIG).

None of these options exist regarding the sovereign crisis in Europe today. If Greece defaults, Portugal can't merge with Spain. And Italy can't be nationalized by Germany or suddenly change itself to a new type of country that gets special treatment from the ECB (it's already getting special treatment from the ECB by the way).

This cuts to the core issues for sovereign defaults in the EU. Here are the facts regarding those EU countries on the verge of collapse:

1) You cannot solve a debt problem with more debt

2) Austerity measures slow economic growth which in turn makes it harder to meet debt payments

This is simple basic common sense. But these are the policies being promoted by EU leaders: we'll give you more money if you implement more austerity measures to get your finances in order. (Stupidity!)

The fact of the matter is that there is simply no way on earth that Greece can get its finances in order (short of a massive default). Greece has terrible age demographics, a lack of economic growth, and cultural issues (e.g. paying taxes is for suckers) that make it impossible for the country to solve its financial problems.

In plain terms, Greece racked up too big of a tab and simply doesn't have the means of paying it. End of story. The world needs to realize this. Because Greece will default and it will default in a big way!!!

The impact of this will be tremendous. For one thing, pretty much everyone is lying about their exposure to Greece. Consider Germany for instance. According to the Bank of International Settlements German bank exposure to Greece is only $3.9 billion (though they state this is only on an immediate borrower basis).

This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros' worth of exposure to Greek debt. And they only include 11 German banks in their analysis. However, of those 11 banks, THREE of them have Greek exposure equal to more than 10% of their total outstanding equity.

But even these numbers are far below the mark. By my own analysis one of the "strongest" banks in Germany alone, by its own admission, has twice the exposure to Greece that the Guardian claims. And this is one of the strongest banks in Germany.

So, when Greece defaults, the fall-out will be much, much larger than people expect simply by virtue of the fact that everyone is lying about their exposure to Greece.

Secondly, when Greece defaults, the other PIIGS (Italy, Ireland, Spain, and Portugal) will have to ask themselves... "do we opt for austerity measures and more debt which obviously didn't work for Greece and will only stifle our economies more? Or do we also default?"

That's a very tough question to answer. But I'd wager more than one of them will opt for default. And if you think European bank exposure to Greece is understated, you don't even want to know how bad exposure to Italy and Spain is (to give you an idea, the German bank I referred to earlier, again by its own admission, has total PIIGS exposure equal to 60% of its equity)!

Folks, the European banking system is literally on the edge of the abyss. This won't be Lehman 2.0. This is going to be something far, far worse. Some of these countries are already sporting unemployment of 20%. What happens when their largest banks go under?

Also, remember that the EU is:

1) The single largest economy in the world ($16.28 trillion)

2) China's largest trade partner

3) Accounts for 21% of US exports

4) Accounts for $121 billion worth of exports for South America

The global impact of an EU banking Crisis will be tremendous. And it's clear the EU is already heading into a recession without a banking crisis hitting. What do you think will be the impact when Europe as a whole experiences its own "2008" only on a sovereign level?

The answer is: we are literally on the eve of a Crisis that will make 2008 look like a picnic.

On that note, if you have not already taken steps to prepare for the next round of the Crisis now is the time to do so while the system is still holding together.

Labels: Collaps, Crash, crisis, Default, Euro Collapse, Euro crisis

# posted by Generalfoundation @ 9:19 AM 0 comments links to this post

According to the BLS, we ADDED 243,00 jobs that month. That's an odd claim given that the BLS admits, in the very same report, that without adjustments, the US actually LOST 2.69 MILLION jobs in January

This is roughly a discrepancy of 3 MILLION jobs. And this 243,000 jobs number for January also comes along with revisions that saw roughly 50,000 jobs added in both October and November.

So according to the BLS, the US is on the upswing again, maybe not in a HUGE way, but overall things are improving: we're adding jobs and unemployment is falling (from 8.5% to 8.3%).

These numbers make the Obama administration look good, at least relative to how it's looked in the previous 12 months. However, they're not reflecting as positively on two of Obama's primary support groups: Wall Street and the US Federal Reserve.

As a brief refresher, let's take a look at Obama's top campaign contributors in 2008:

Altogether, the finance industry ponied up $24 million for Obama in 2008. And Wall Street has not only been cutting their growth forecasts but has actually been firing people based on the fact the economy is so rough.

N.Y. faces 10,000 Wall St. cuts through 2012

(From October 2011)

Bank of America Corp. plans to cut 30,000 jobs over the next few years, while UBS AG intends to shave 3,500 jobs and Goldman Sachs Group expects to eliminate 1,000 jobs.

As for the forecasting component:

Wall Street banks curb economic growth forecasts

(From January 2012)

Wall Street banks lowered their outlook for U.S. economic growth due to concerns over the European debt crisis, oil prices, regulatory uncertainties and "continued disarray in Washington," according to a financial industry survey released on Tuesday.

The survey, which included bankers from Morgan Stanley, Wells Fargo Securities and Citigroup, forecast that the U.S. economy will grow at a rate of 2.2 percent this year, down from a previous forecast of 3.1 percent.

The January jobs report not only makes these guys look like they can't forecast anything... but that they don't even know how to run their own businesses. It also adds to the image that they're heartless and will lay people off to maintain profits (if the economy is improving, why are they firing people?)

This is not exactly the best policy to maintain for constituents who have put up some big money for Obama's campaigns in the past. One wonders if Obama's campaign managers considered this.

The January jobs report also reflects poorly on the White House's monetary buddy, the Obama's administration's "go to" guy for any kind of uptick in economic data: Ben Bernanke. After all, the Fed has also been cutting its growth forecasts and expecting higher unemployment.

US Fed cuts growth forecasts for 2012

(From November 2011)

The Federal Reserve said it now expects US growth to be weaker and unemployment higher than it thought in its last set of forecasts, as the central bank left the door open to fresh measures to help the world's biggest economy.

Also...

Fed foresees weak US growth through 2014

(From January 2012)

The Federal Reserve cut its US growth forecast Wednesday and said that with business investment and the housing sector depressed, it expected to keep interest rates near zero for another three years

Despite an upturn late last year, the Fed said ongoing economic weaknesses and strains in global financial markets mandated continued easy-money policies...

"I don't think we're ready to declare that we have entered a strong phase at this point.

So add the Fed to the group of people Obama's jobs report leaves looking less than on top of things. On a side note, it also makes the likelihood of more QE or monetary easing from the Fed more remote (if the economy is improving, they have no reason to announce more policies... which is not positive for asset prices... or Wall Street).

This all returns to two primary themes I've been expounding on for months now: that the political environment has changed dramatically in the US and that we are going to see escalating tension between Wall Street, the Fed, and the White House.

The reason for this is simple: the public is growing more outraged by the minute. That anger will have to be directed somewhere. And when push comes to shove, it's likely we're going to see some actual real litigation relating to what happened in 2008-2009.

When this happens, the whole Fed/ Wall Street/ Politician triumvirate will begin to change dramatically. Some of these groups will try to portray themselves as "men of the people" (Obama is doing this, and so is the Fed with its recent town-hall meetings and Bernanke's efforts to appear like a average joe who reads his kindle). Others will prepare for battle (Goldman Sachs' CEO has hired a defense attorney).

How this will all play out remains to be seen. But the debt markets are going to speed this process up dramatically as Europe implodes and the great debt implosion comes to the US. With 48% of US citizens living in a house in which at least one person receives Government aid, you can imagine the impact that the sort of large cuts in social welfare programs that a debt restructuring in the US would have on the political process in here.

My assessment, this January jobs report is the tip of the iceberg. Tensions will be rising in the US over the next 12 months. How exactly this will play out remains to be seen (there are too many factors), but changes are coming to the political arena as well as the monetary balance between Wall Street and the Fed (remember, the Fed actually sued Goldman Sachs last year). These changes will be dramatic.

Labels: Crash, crisis, Crisis Crash, Default, depression

# posted by Generalfoundation @ 6:49 AM 0 comments links to this post

The Greeks have no idea what they've gotten themselves into.

A few facts about Greece...

First off, demographics wise, Greece is a disaster.

Real Clear Markets shares the following facts.

• Greece's fertility rate is 1.3 children per women. This is nearly a full child below the "replacement rate": the number of children needed to maintain the current population.
• Greece's population of 65 and over has soared from 11% in 1970 to 24% in 2010. It will hit 33% by 2050. Meanwhile, Greece's working population will decline to 20% over the same time period.
• Because of this, Greece spends 12% of its GDP on pensions.
  

As if this weren't bad enough, the unemployment rate for Greeks aged 15-24 is 40%. For Greeks aged 24-34 it's 22%. Imagine being a young person, not being able to find a job, and then knowing that huge percentage of your efforts (42%) are going to be taxed to fund all the crazy social welfare programs for Greece's aging population. Small wonder that seven out of ten young Greeks want to work abroad and four of out ten are actively seeking work outside of Greece.

Also, it's no surprise that those Greeks who do have jobs, don't want to pay this massive tax load. Consider that the Greek working population is roughly seven million people. 95 percent of them declare annual income of less than 30,000 euros.

So that's the situation in Greece. Terrible age demographics, an economy that's in the toilet, and politicians who simply don't get it.

Now let's consider who's actually got the cash to potentially help Greece from a default, and what they want in return.

We're talking about Germany.

For most of the Greece Crisis, the supposed "saviors" were the IMF, the ECB, and Germany. That all changed in the last month. The IMF has called for more funds. Those funds aren't coming. Remember, the IMF is largely a US-backed organization. And the US sure as heck won't go for a US-backed bailout of Europe.

So the IMF is out of the picture in terms of helping Greece in any meaningful way.

Now, how about the ECB? Well Germany has told the ECB to its face that if it continues to monetize EU sovereign bonds that Germany will walk out on the Euro. So the ECB may continue to meddle in the bond market to avert a Crisis, but if it ever decides to publicly state it will be monetizing EU debt going forward, Germany's out and the Euro implodes.

Which leaves Germany as the official backstop/ savior for Greece. And here's how Germany recently address the IMF when the IMF asked Germany for help with the Greek situation.

Berlin resists pressure to give Greece more

Germany, the biggest and richest country in the euro zone, has provided the bulk of the funds for the bailouts of Ireland, Portugal and Greece. Now it is firmly rejecting calls to come up with yet more funds for Greece to compensate for any shortfalls in a debt relief deal with private creditors.

On Friday Foreign Minister Guido Westerwelle defended Berlin's tough stance. The Greeks, he insisted, should show that they are willing to implement reforms before getting more money.

"We Germans do not expect from anyone in Europe more than what we are asking from our own citizens. We cannot explain to taxpayers in Germany that they have to do things that others do not want to do while at the same time asking for their money," Westerwelle said in Brussels.

He pointed out that Germany had already come up over 200 billion euros ($262 billion) for the bailout funds. "It makes no sense" he said, to give more money to Greece, "if we don't know whether the reforms which have been agreed upon will be really implemented." He argued that coming up with more money just lessened the pressure to reform.

http://www.globalpost.com/dispatch/news/regions/europe/germany/120127/berlin-resists-pressure-give-greece-more

Diplomatically, this is about as close as Germany can come to telling the IMF to "stuff it." Germany knows the IMF doesn't have the funds and won't be getting them (the IMF is primarily a US-backed entity and the US won't stand for a US-backed European bailout).

Indeed, just a few days after Germany said "nein" to more Greece bailouts, it then threw the following suggestion out:

German proposal seeks EU commissioner with sweeping powers to directly control Greece's budget

Germany is proposing that debt-ridden Greece temporarily cede sovereignty over tax and spending decisions to a powerful eurozone budget commissioner before it can secure further bailouts, an official in Berlin said Saturday.

The idea was quickly rejected by the European Union's executive body and the government in Athens, with the EU Commission in Brussels insisting that "executive tasks must remain the full responsibility of the Greek government, which is accountable before its citizens and its institutions."

http://www.washingtonpost.com/business/markets/german-proposal-seeks-eu-commissioner-with-sweeping-powers-to-directly-control-greeces-budget/2012/01/28/gIQAxHWgXQ_story.html

In plain terms, push has now to come shove in Europe. Germany permitted the ECB to implicitly monetize various EU sovereign nations' debts during 2011 because Germany hadn't yet taken the steps to prepare for a collapse of the EU.

It now has. In the last six months, Germany has:

1. Passed legislation permitting it to leave the Euro without leaving the EU.
2. Passed legislation permitting it to nationalize German banks during times of Crisis.
3. Demanded that German banks in general raise capital.

In plain terms, Germany is now prepared to walk away if it has to. And it's made its demands very clear: if you want German funds, you will need to give up fiscal sovereignty.

It's also made it clear that it will tolerate neither the issuance of Eurobonds OR direct and open monetization by the ECB.

In other words, Germany has said "it's our way or the highway." True, this borders on an act of financial warfare, but in the end, Germany has never truly been interested in a monetary union so much as a political union.

Germany will not suffer inflation (they've seen how monetization works out, e.g. Weimar), nor internal discord (in November 78% of Germans thought the Euro would survive... by December 60% of them though the Euro was a "bad idea".)

Labels: Crisis Crash, Default, Euro Collapse

# posted by Generalfoundation @ 6:40 AM 0 comments links to this post

I wanted to take a moment to address the notion of serious collapse and/or systemic failure and why it's so hard for most investors to conceive.

First off, most people in general tend to be optimists or to generally believe that things will work out fine. So the idea of catastrophe is not something they spend much time thinking about.

Because of this, and other factors I'm about to explore, the notion of systemic failure is virtually impossible to grasp for most investors. Most professional traders are usually under the age of 40 (in fact they're typically in their mid to late 20s). As a result of this, they:

1) Didn't experience the 1987 Crash

2) Have never seen a Crisis that the Fed/ IMF/ etc. couldn't handle

Let's add a secondary element to this. Most institutional traders today operate, for the most part, based on trading models. These models, in general, are quantitative and based on correlations and patterns, not qualitative judgments.

This goes a long ways towards explaining why the market has developed such simplistic trading patterns. Consider the "Monday market rally" phenomenon we saw throughout 2009-2010. Or how about the Aussie Dollar/Japanese yen correlation to the S&P 500 we saw throughout much of 2010-2011. As one asset manager put it to me recently, the market has essentially become "one big trade" with virtually all asset classes moving tick for tick relative to each other.

Let us consider the mentality these age demographics and professional working tools engender. In general, both of these factors make for short-term thinking and a lack of qualitative analysis. They also mean that items or developments that exist outside the universe of trading models (most of which are entirely based on post-WWII data), are outside the scope of these traders' thinking.

This issue doesn't merely pertain to traders either. Going back 80+ years, there's never been a time in which the markets didn't have a backstop in the form of the Fed/ IMF/ or some other entity. No matter the Crisis that erupted, there was always money printing and other monetary policies to calm the storm.

Now, let's expand our analysis outside of professional traders to include asset managers and other institutional investors, the vast majority of whom are under the age of 60 or so.

Based on this age demographic, we find that there is an entire generation of investment professionals (aged 35-60) who:

1. Have never witnessed nor invested during a bear market in bonds
2. Have never witnessed, nor invested during a credit market collapse
3. Have never witnessed a secular shift in the global economy

Consequently, the vast majority of professional investors are unable to contemplate truly dark times for the markets. After all, the two worst items most of them have witnessed (the Tech Bust and 2008) were both remedied within about 18 months and were followed by massive market rallies.

Because of this, the idea that the financial system might fail or that we might see any number of major catastrophes (Germany leaving the EU, a US debt default, hyperinflation, etc.) is on par with Bigfoot or Unicorns for 99% of those whose jobs are to manage investors' money or advise investors on how to allocate their capital.

If this doesn't worry you, you need to start looking at the actual numbers behind the financial system today. Here are just a few worth considering:

1. US commercial banks currently sit atop $248 TRILLION in derivatives
2. The US Federal Reserve is now buying 91% of all long-term new US debt issuance (at the same time China and Russia are dumping US bonds)
3. Japan already spends roughly half of its annual tax revenues on debt payments and has relied on debt issuance more than tax revenues to fund its budget for four years now (how much longer can this last?)
4. Europe's entire banking system is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it failed)

!
Folks, bad times are coming. It doesn't matter what the trading programs or "professionals" think about it... the math simply doesn't add up to us having a calm, profitable time in the markets over the next few years.

On that note, the time to be preparing for what's coming is now.

Labels: collapse, Crash, crisis, Default

# posted by Generalfoundation @ 11:54 AM 0 comments links to this post

Well the Fed disappointed as I stated it would. How anyone could be surprised by this is beyond me. The Fed was admitting that the consequences of QE rendered it less "attractive" as an option as far back as May 2011.

Moreover, the last six months have shown the Fed to be relying heavily on verbal intervention rather than direct monetary intervention. Every FOMC meeting (and any time the market takes a dive) some Fed official steps forward and promises that the Fed stands ready to help if needed.

The reasons for this are three fold:

1) Why bother with monetary intervention when you can get the same effect from verbal intervention?

2) The Fed is too politically toxic now to simply unveil a massive new monetary scheme without a Crisis hitting first.

3) The Fed is well aware of the consequences of QE (higher food and gas prices) and while it focuses on CPI as the measure of inflation, the political pressure engendered by higher costs of living are certainly on the Fed's radar.

In plain terms, the bar for more QE is set much, much higher than the vast majority of analysts realize. The reason is that the Fed can no longer simply prime up the printing presses if the economy takes a dip.

We've seen this clearly in the last two Fed FOMC statements, in which the Fed downgraded its view of the US economy to posting "modest growth" (Fed speak for next to none) and then offered a "highly accommodative stance," (Fed speak for "we're out of ideas but can always hit the 'print' button") as way of dealing with this.

Let's cut the BS here. The Fed has maintained a more than highly accommodative stance for three years now and U-16 unemployment, food stamp usage, home prices, and virtually every other economic metric indicate that they've done little to boost the US economy in any meaningful way. QE has and always will be about boosting asset prices in the hope that the Fed can stimulate a recovery by getting the S&P 500 to some level.

The only problem with this is that people don't engage in financial speculation to pay their bills. Incomes have and always will be the single most important metric for gauging consumer strength. And the Fed's policies of the last few years have done nothing to boost incomes (unless you work on Wall Street).

If you read headlines stating "Fed Gave Trillions to Banks" and you've been laid off and are living off food stamps, your blood pressure might tend to rise.

And you might tend to vote based on that.

Folks, the reality is that the Fed's hands are tied. That's why they keep issuing these innocuous policies (keeping interest rates low until 5056 or some insane future date) without actually doing anything. They know that additional easing means inflation soaring, which makes the Fed that much more a target of popular outrage.

So if you're counting on the Fed propping the market up throughout 2012 as it did in 2011, you may be in for a rude awakening in the coming months. Every day that we get closer to the 2012 Presidential election, the bar for more QE goes higher and higher. Truly unless we get some kind of major Crisis, the Fed won't be doing much of anything.

So let the traders run their "end of the month" games this week. But don't be surprised if stocks start to take a dive in early February.

Labels: Crash, crisis, Debt crisis, Deflation, End game

# posted by Generalfoundation @ 10:54 AM 0 comments links to this post

What's truly interesting here is that the Emerging Market space has been lagging US stocks in a big way on this move: a marked difference from the market action that preceded QE lite and QE 2.

The same goes for commodities and other "Risk On" assets, which are not even close to exceeding recent highs:



So... are stock investors smarter than everyone else... or are they just gunning the market on low volume yet again regardless of reality? We'll find out this week once we get past the Fed FOMC and Europe's decision on Greece.

# posted by Generalfoundation @ 10:50 AM 0 comments links to this post

The reasons for this are simple:

1) The German public and court system won't stand for QE from the European Central Bank

2) Issuing Euro bonds goes against the German constitution

3) Germany has its own share of domestic problems with a REAL Debt to GDP ratio north of 200% and its banks needing tens of billions of Euros in new capital

All of these factors lead me to believe that Germany would refuse to be the ultimate backstop for the EU. You could also see Germany preparing the legislation to allow it to walk if it wanted to:

German Chancellor Angela Merkel's Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules.

http://www.bloomberg.com/news/2011-11-11/german-cdu-is-set-to-back-motion-allowing-euro-member-exit-1-.html

The resolution reads:

"Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily--according to the rules of the Lisbon Treaty for leaving the European Union--leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro."

I believe Germany implemented this legislation for itself... not some other country. And by the look of things, Germany's getting a lot closer to walking.

BBK Thiele: Current ECB Government Bond Buys Violate Treaty

The European Central Bank's government bond buys are a violation of the Maastricht Treaty, Bundesbank board member Carl-Ludwig Thiele said Monday.

Thiele's comments depart form the official Bundesbank line. While the German central bank has warned that larger purchases may be illegal, it has said that current purchases do not violate the prohibition of monetary financing.

Thiele recalled that the decision to buy Greek government bonds had found no support from German ECB Governing Council members. "Germany was over-ruled on the Council," Thiele said.

"These buys were a violation against the prohibition of monetary financing, that is the basic principle that a central bank should not give credit to a state," Thiele said in a speech text provided by the Bundesbank.

https://mninews.deutsche-boerse.com/index.php/bbk-thiele-current-ecb-government-bond-buys-violate-treaty?q=content/bbk-thiele-current-ecb-government-bond-buys-violate-treaty

Bundesbanker says euro zone must forget idea of QE

Europe must abandon the idea that printing money, or quantitative easing, can be used to address the euro zone debt crisis, Bundesbank board member Carl-Ludwig Thiele said on Monday.

Thiele called for euro zone countries to exercise fiscal discipline and said that boosting the resources of Europe's rescue funds would buy time to address the bloc's debt woes.

"But lasting confidence cannot be bought with money alone," he added in the text of a speech for delivery in Hamburg.

"One idea should be brushed aside once and for all - namely the idea of printing the required money. Because that would threaten the most important foundation for a stable currency: the independence of a price stability orientated central bank."

http://www.sharenet.co.za/news/Bundesbanker_says_euro_zone_must_forget_idea_of_QE/d02483d59237b6eb2c6ae98f17b3e1ce

These are extremely strong statements coming from the Bundesbank. Remember, Merkel is the German political leader, but she doesn't control the purse strings to Germany: the German courts and Bundesbank do. And if they don't support more bailouts, there's nothing Merkel can do.

We see similar warnings coming out of German CEOs:

Linde CEO says Germany should mull euro exit-paper

Germany should consider leaving the euro if efforts to impose fiscal discipline upon indebted euro zone countries fail, the head of industrial gases firm Linde (LING.DE) told German weekly paper Der Spiegel.

"I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in," Linde's chief executive Wolfgang Reitzle was quoted as saying.

"If we do not succeed in disciplining crisis countries, Germany needs to exit," said Reitzle who was previously a board member at carmaker BMW (BMWG.DE) and head of Jaguar and Land Rover.

http://in.reuters.com/article/2012/01/15/eurozone-linde-idINDEE80E07Z20120115

I firmly believe Germany is already makings moves to prepare for precisely this outcome. No EU member state is going to submit to German authority regarding fiscal policies. Indeed, virtually every EU legislation passed in the post-WWII era was aimed at limiting Germany's power.

And Germany isn't going to simply prop up the EU out of the goodness of its heart. As I mentioned before, Germany has its own domestic issues to deal with. And when push comes to shove, Germany will look after its own interests rather than Greece's or Italy's.

With that in mind I believe it's only a matter of time before Germany walks out of the EU. When this happens the Euro will collapse a minimum of 20-30% and we will see numerous sovereign defaults.

When the smoke clears the EU in its current form will be broken and we will have passed through a Crisis far worse than 2008.

Many people see their portfolios go up in smoke with this. Don't be one of them. The time to prepare your portfolio for the collapse is NOW before it starts.

Labels: Crash, Default, Euro Collapse, Euro crisis

# posted by Generalfoundation @ 4:35 AM 0 comments links to this post

It is now clear that the Euro will be broken up
in the coming months.

Consider the following statement from Italy's largest bank:

Euro break-up cited as risk in UniCredit prospectus

UniCredit, Italy's largest bank by assets, has cited the
break-up of the euro zone and the collapse of the single
currency as risk factors in the prospectus of its 7.5
billion euro rights issue.

http://www.reuters.com/article/2012/01/05/unicredit-ceo-euro-idUSL6E8C547I20120105

Or how about this one straight from two German lawmakers:

Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable

Lawmakers from Chancellor Angela Merkel's party are
stepping up pressure on Greece as it struggles to meet
the terms of its second bailout, saying that a Greek exit
from the euro region would be manageable.

http://www.businessweek.com/news/2012-01-12/greek-euro-exit-weighed-by-german-lawmakers-seen-as-manageable.html#1_undefined,0_

There are simply stunning comments coming out of
VERY high level sources in Europe. Remember,
as much as Merkel talks about maintaining the Euro,
she needs German lawmakers to back her on that
decision.

And that simply isn't going to happen. The German
courts and German voters simply won't stand for it.

So while Merkel and Sarkozy talk time and again about
solving this situation, the fact remains that moves are
already being made behind the scenes to prepare for
the end of the Euro.

This is not mere conjecture. Numerous EU central
banks have already begun preparing for the possibilty
of printing their old currencies again. Germany is one
of the countries doing this by the way.

In plain terms, the Euro in its current form is finished.
When it breaks up we will see widespread defaults
across the EU. And what follows will make 2008 look
like a joke.

So if you have not already taken steps to prepare for the next
round of Euro Crisis... you need to do so now!
Once the Euro breakup is announced it will be too late
as panicked selling pushes the market into collapse.

Many people will see their portfolios destroyed by this.
Now is the time to make sure you're not one of them.
I can show you how. Indeed, few investors can match
my ability to make profits out of a Crisis.

Labels: Crash, crisis, Debt crisis, Default, Euro finished

# posted by Generalfoundation @ 6:44 AM 0 comments links to this post

My Free Gift $97.00 Value Instant Blog Subscribers

Instant Blog Subscribers Is the fastest way to massive exposure, and the easiest to use system that has ever been released. Start building YOUR OWN SUBSCRIBERS on autopilot. HUNDREDS OF Instant Blog Subscribers is worth ANYTHING for your web exposure. Today, it's yours free. Grab your free bonus today! Click below! Instant Blog Subscribers

Labels: free blog subscribers

# posted by Generalfoundation @ 10:31 AM 0 comments links to this post

We are now into the second week of 2012 and frankly I can't see any fundamental reason to be bullish about things. The European debt Crisis continues to accelerate, with France's borrowing costs rising dramatically and the yield on Italy's ten-year back above 7% despite massive intervention on the part of the ECB.

Indeed, it's quite telling that the one country that kicked off the entire EU Crisis, Greece, still hasn't gotten its fiscal house in order: there's only 37 billion Euros' worth of aid left from the first bailout of 110 billion Euros... and the EU has yet to hammer out details of the second Greek bailout, worth an additional 150 billion Euros.

If the ECB/ IMF/ Central Banks cannot solve the Greece situation... what hope do they have of tackling the larger issues of Italy and France? Heck, even Germany now sports a Debt to GDP ratio that exceeds Maastricht Treaty requirements and they haven't recapitalized their banks.

As a result of this, shares of even the supposedly "rock solid" German banks have come under stress, breaking down into the gap established during the 2008 Crash.

Aside from Europe, we find signs of a brewing solvency Crisis in Japan, an economic slowdown in China, Iran is playing war games with the Strait of Hormuz, and the US is entering a second recession within the context of a larger Depression.

Against this highly deflationary backdrop, the one primary prop for the markets is hope of more juice/credit from the world Central Banks. However, even that prop is rapidly losing its strength: the gains of the last coordinated Central Bank intervention lasted just a few weeks before the market rolled over again.

Moreover, if the world Central Banks are about to launch another massive wave of liquidity, the commodity space sure isn't picking up on it...

Gold has broken its post-Crash trendline:

While Copper appears to be forming a massive Head and Shoulders top:

Does this mean that the markets are about to plunge straight down? No. But these charts do serve as massive warnings that anyone expecting another round of QE or some other huge monetary stimulus from the Central Banks may be in for a RUDE surprise.

With that in mind, this week's action will go a long ways towards explaining where we're heading from here. Start of the Year buying is over and holiday ebullience is fading fast. Put another way, the market is on very thin ice.

Labels: Crash, crisis, depression, recession

# posted by Generalfoundation @ 3:31 AM 0 comments links to this post

In 2008, the Central Banks, lead by the US Federal Reserve, decided not to "take the hit." They've since spent trillions of Dollars propping up the financial system. By doing this, they've essentially attempted to fight a debt problem by issuing more debt.

The end result is similar to what happens when you try to cure a heroine addict by giving him more heroine: each new "hit" has less and less effect.

Case in point, consider the Central Banks' coordinated intervention to lower the cost of borrowing Dollars three weeks ago. Remember, this was a coordinated effort, not the Federal Reserve or European Central Bank acting alone.

And yet, here we are, less than one month later, and European banks have wiped out MOST if not ALL of the gains the intervention produced.

Here's the Irish Bank Allied Irish Banks:

This is actually the best of the bunch I'm going to show you (by the way, this was a $4 stock at the beginning of the year).

Here's the Spanish Bank Santander:

And lest you think it's only the PIIGS banks that are in trouble, here's French bank Credit Agricole:

And here's Germany's Commerzbank:

In plain terms, the Central Banks are losing their control of the markets. Given that they are the only thing that stopped systemic collapse in 2008, this does not bode well for the markets.

Labels: Collaps, Crash, crisis, Debt crisis, Euro crisis

# posted by Generalfoundation @ 4:26 AM 0 comments links to this post

Here's the 30-Year Treasury Bond:

As you can see, we've already surpassed the former all-time established during the nadir of the 2008-2009 Crisis. To say this is deflationary would be an understatement. Indeed, on the shorter end of the bond curve Treasuries are yielding 0% (the 3-month), 0.02% (the six month) and 0.2% (the two year).

Put another way, investors are essentially willing to lend to the US for almost NOTHING in return for up to two years... based solely on the notion that by doing so they're at least "guaranteed" a return OF capital.

DE-flation.

Here's Gold:

Considering that Gold is a leading indicator for stocks... and that the precious metal only breaks below its long-term uptrend in times of systemic risk, the above breakdown is a MAJOR red flag that something BAD is brewing in the financial system. That something is another round of DE-flation.

How about Agricultural commodities... which anticipated QE Lite and QE 2 before every other asset class?

As you can see, we've wiped out ALL of the QE 2 gains and are now on the verge of breaking back into a trading range that goes back to 2009. Again, DE-flation.

And then there's stocks... the most clueless of asset classes, which simply don't "get it"... yet.

As you can see, while Europe's banking system is imploding, Gold has broken its long-term uptrend, and US Treasuries are signaling a Crisis even worse than 2008, stocks are bouncing off of support as though there's no real danger.

This can be attributed to three factors:

1) Light volume (fewer and fewer folks are investing in stocks which allows Wall Street to move the market more easily).

2) End of the year performance gaming by hedge funds and institutions (most of which have had horrible years)

3) Misguided hope and delusions... just like the ones we had in 2008 when stocks didn't "get it" until the whole system was ready to collapse

In simple terms, the best analysis of today's markets is that we are getting MAJOR red flags across the board that another round of DE-flation is here.

Against this backdrop, stocks are as clueless as they were in 2008. And given that most traders will be taking off early this week, those remaining will be able to move the market any way they please as volume will be even lower than the abysmal levels we've seen for most of 2011.

So my advice is to avoid trading this week if you can help it. There is simply too much uncertainty in the market: stocks could rally based on end of the year shenanigans... or they could just as easily collapse due to Europe or any number of other issues in the system today.

However, the larger picture indicates that deflation is back and it's back with a vengeance. It would be wise to prepare in advance for this as stocks are ALWAYS the last to "get it." And by the looks of the recent action in Gold and Treasuries, "It" is going to be something VERY unpleasant.

Labels: collapse, Crash, Debt crisis, Deflation

# posted by Generalfoundation @ 3:21 AM 0 comments links to this post

One of the biggest problems facing the world today is the fact that most world leaders have little if any business experience. Those who do are inevitably investment bankers/ financiers who, while technically businessmen, have expertise primarily in financial engineering, NOT manufacturing goods or services that create actual job growth.

With that in mind, when analyzing what's happening in Europe, it's wise to consider what ACTUAL businesspeople are doing today with their corporations' cash rather than what leaders are claiming is true about the financial system.

Case in point, every other week we are told that Europe's problems will soon be solved and that the EU will be stronger then ever. If this is indeed the case, I wonder about the following story:

European CEOs Move Cash to Germany In Case of Euro Breakup

Grupo Gowex, a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank...

"A couple of weeks ago I would never have thought about having conversations on the probability of the euro disappearing, but now there is more speculation on such a scenario," Wolters Kluwer NV (WKL) CEO Nancy McKinstry said in a Nov. 29 interview at the company's headquarters outside Amsterdam...

Kingfisher Plc (KGF), Europe's largest home-improvement retailer, has considered plans for the possibility of a collapse of the euro region and will focus on cash generation to account for that possibility, Chief Executive Officer Ian Cheshire said.

http://www.bloomberg.com/news/2011-12-09/wary-european-ceos-move-cash-to-germany-to-protect-against-breakup-risk.html

These are REAL businesspeople who RUN corporations, preparing for the breakup of the Euro by moving their cash to Germany. Read the above article: it features executives from companies throughout Europe all of whom state they are preparing for a Crisis and the potential of a Euro breakup.

And if you think that politicians have somehow solved the banking crisis... read the following:

Eurozone banking system on the edge of collapse

If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank.

Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.

http://www.telegraph.co.uk/finance/financialcrisis/8947470/Eurozone-banking-system-on-the-edge-of-collapse.html

If a bank has to resort to lending out GOLD reserves in order to get DOLLAR funding so it can maintain liquidity... then it's on its deathbed. And this is happening in France, Italy and Spain RIGHT NOW.

It's time we admit the truth, the EU and its banking system are literally on the edge of collapse. Think 2008... for an entire region. And politicians are going to solve this mess with a March 2012 meeting!?!

The impact of what's coming will be TREMENDOUS. Europe's banking system is over $40 trillion in size. The EU, taken as a whole, is:

1) The single largest economy in the world ($16.28 trillion)

2) Is China's largest trade partner

3) Accounts for 21% of US exports

4) Accounts for $121 billion worth of exports for South America

So if the EU banking system/ economy collapses, the global economy could enter a recession just based on that one issue alone (ignoring the other issues in China, Japan, and the US).

Make no mistake, we're heading into a Crisis that will make 2008 look like a picnic. If you've yet to prepare for this, I suggest you do so now.

Labels: Collaps, Crash, crisis, Debt crisis, Default, Euro finished

# posted by Generalfoundation @ 4:25 AM 0 comments links to this post

I've stated before that I fully believe Germany will be leaving the Euro. With that in mind, I want to draw your attention to recent comments from Germany's finance minister, Wolfgang Schauble.

Wolfgang Schauble admits euro bail-out fund won't halt crisis

Europe's "big bazooka" bail-out fund is not ready and won't stem the debt crisis that on Tuesday pounded Italy and the European Central Bank (ECB), admitted Wolfgang Schauble, Germany's finance minister.

http://www.telegraph.co.uk/finance/financialcrisis/8924462/Wolfgang-Schauble-admits-euro-bail-out-fund-wont-halt-crisis.html

This is a pretty strong admission from the finance minister of the country that Europe looks to as a financial backstop. And the following is even more disconcerting for the future of the Euro:

Seeing in Crisis the Last Best Chance to Unite Europe

MR. SCHÄUBLE said the German government would propose treaty changes at the summit of European leaders in Brussels on Dec. 9 that would move Europe closer to the centralized fiscal government that the currency zone has lacked. The ultimate goal, Mr. Schäuble says, is a political union with a European president directly elected by the people.

"What we're now doing with the fiscal union, what I'm describing here, is a short-term step for the currency," Mr. Schäuble said. "In a larger context, naturally we need a political union."

Critics say the spending cuts German leaders have demanded from other countries are hurting growth across the Continent, in the process making debts only harder to repay. And his proposals to give the European Commission far-reaching powers to enforce budgetary discipline have been likened by skeptics in Britain to an invasive new "super state." Even some euro supporters fear that Mrs. Merkel and Mr. Schäuble are talking about long-term changes while panicked investors and practiced speculators are tearing the euro to pieces right now.

"There is a limited transition period where we have to manage the nervousness on the markets," Mr. Schäuble said. "If it is clear that by the end of 2012 or the middle of 2013 that we have all the ingredients for new, strengthened and deepened political structures together, I think that will work."

He sees the turmoil as not an obstacle but a necessity. "We can only achieve a political union if we have a crisis," Mr. Schäuble said.

http://www.nytimes.com/2011/11/19/world/europe/for-wolfgang-schauble-seeing-opportunity-in-europes-crisis.html?_r=1&pagewanted=2

Note that Schauble repeatedly emphasizes the goal of a "political union," NOT a "fiscal union" or "monetary union." Indeed, his one reference to a "fiscal union" is in the "short-term," while stressing that in a "larger context" the EU needs a "political union."

The message here is very, very clear: Germany is interested in the EU as a political entity, NOT the Euro as a currency. With that in mind, consider the following story which received almost NO attention from the media:

-German Chancellor Angela Merkel's conservatives on Monday passed a resolution at a party convention urging the government to establish rules in Europe that would allow a country to voluntarily leave the euro zone without giving up membership in the European Union.

The resolution reads:

"Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily--according to the rules of the Lisbon Treaty for leaving the European Union--leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro."

http://online.wsj.com/article/BT-CO-20111114-712771.html

I fully believe that Germany is laying the groundwork for it to leave the Euro while still remaining a member of the EU. The alternative to this would be for Germany to demand other nations give up their fiscal sovereignty and make Germany a kind of monetary authority in exchange for additional bailouts. However, the likelihood of this option being presented is next to ZERO as ALL of Europe remembers WWII and the threat of German rule.

So I expect Germany to duck out of the Euro in the near future. It may happen in the next few weeks or it may happen in early 2012. But considering that the Federal Reserve had to step in to save the European banking system today I believe it will be sooner rather than later.

So if you believe that Germany is going to save the EU... you're in for a rude surprise. Indeed, if we look at the bond or credit markets, it's clear we're into a Crisis far greater than 2008. Forget the stock market rally. Stocks ALWAYS get it last (just like in 2008). And before the smoke clears on this mess we're going to see sovereign defaults, bank holidays, riots, and more.

Many people will lose everything in this mess. Yes, everything. However, you don't have to be one of them. Indeed, I can show you how to turn this time of collapse into a time of profits.

Labels: chaos, Debt crisis, Default, Euro finished, Germany leaves Euro

# posted by Generalfoundation @ 3:52 AM 0 comments links to this post

Equities got giddy last week when the world's central banks, lead by the US Federal Reserve, lowered the global cost of borrowing Dollars. Regardless of the market's reaction, the whole thing smells of desperation and quite frankly, everyone should be questioning the Fed's move.

First of all, the situation in Europe is a solvency Crisis, not a liquidity Crisis. European banks need over one trillion Euros in new capital. Providing more cheap credit is not going to do anything other than give those European banks which are facing liquidity troubles a few more weeks life support.

Speaking of which, it's now clear that Europe is fast approaching its Lehman moment. Forbes noted that a large European bank was on the ropes the night before the Fed intervention. We also see France and Germany are implementing plans to nationalize large banks that fail. I can assure you they're not doing this because things are going well over there.

As for the market's reaction to the Fed's move... it could kick off a short-term end of the year rally depending on how much the market falls for the "this time we've got a REAL solution" tripe coming our of Europe. But, you must remember that none of the proposed solutions address the underlying problems Europe's banks are facing.

Technically, the Fed's move brought the market to major resistance. Unless the market moves higher aggressively to start this week, we're heading back down in short order.

Truly, the only reason to buy into a stock rally here is based on the belief that the Fed or someone else is going to be providing more juice in the near future. The US economy has clearly begun to roll over in a big way: retail sales, GDP, and unemployment numbers are all being massaged heavily to make the situation look better than it is.

This is clear in corporate earnings which just posted their worst sequential drop since the first quarter of 2009: when the economy and markets were both falling off a cliff. These kinds of drops don't happen if everything's going well.

Across the pond, Europe's banking system is experiencing a solvency crisis on par with 2008. The markets believe that Germany and France will save the day by re-vamping the EU arrangement. However, this doesn't mean other EU members will agree to their suggestions (the idea of a German-lead EU is completely unpalatable to many EU states).

So I don't expect a viable solution to emerge in Europe this week. The math doesn't support any of the proposals EU leaders have come up with yet. And the fact it was the Fed, NOT the IMF or ECB or EFSF that stepped in to save the day last week should be a major red flag that Europe's out of ideas.

The markets seem to sense this as the Euro hasn't cleared resistance in any meaningful way yet. And unless we get above 135 and stay there, we're heading a LOT lower in the near future.

To conclude, in the short-term the markets are moving based on hope of more juice from the Powers That Be. However, the reality of the financial system today is downright frightening. The US economy is rolling over in a big way. Europe is imploding. China is heading straight into a hard landing. And on and on.

Heck, Europe alone could derail the entire financial system temporarily. The region's entire banking system is insolvent (with few exceptions). European non-financial corporations are running massive debt to equity ratios. And even EU sovereign states require intervention from the ECB just to meet current debt issuance, to say nothing of the huge amount of sovereign debt roll over that is due over the next 14 months.

The impact of this will be global in nature. The EU, taken as a whole, is:

1) The single largest economy in the world ($16.28 trillion)

2) Is China's largest trade partner

3) Accounts for 21% of US exports

4) Accounts for $121 billion worth of exports for South America

So if the EU banking system/ economy collapses, the global economy could enter a recession just based on that one issue alone (ignoring the other issues in China, Japan, and the US).

This is the reality of the financial system, no matter what the talking heads say. The IMF, Bank of England, and others have warned of a systemic collapse... do you think they're doing this for fun?

Many investors will have their portfolios wiped out in the coming carnage. It could be next week, or it could take place next year... but we ARE heading into a Crisis that will be worse than 2008.

Labels: collapse, Crash, Euro crisis, Euro default, europe

# posted by Generalfoundation @ 10:14 AM 0 comments links to this post