With the European End Game now in sight, the primary question that needs to be addressed is whether Europe will opt for a period of massive deflation, massive inflation, or deflation followed by inflation.

Indeed, with Europe's entire banking system insolvent (even German banks need to be recapitalized to the tune of over $171 billion) the outcome for Europe is only one of two options:

1) Massive debt restructuring

2) Monetization of everything/ hyperinflation

These are the realities facing Europe today (and eventually Japan and the US). Either way we are talking about the destruction of tens of trillions of Euros in wealth. The issue is which poison the European powers that be choose.

Personally, I believe we are going to see a combination of the two with deflation hitting all EU countries first and then serious inflation or hyperinflation hitting peripheral players and the PIIGS.

In terms of how we get there, I believe that in the next 14 months, the following will occur.

1) Germany and possibly France exit the Euro

2) ALL PIIGS defaulting on their debt

3) Potential hyperinflation in the PIIGS and peripheral EU countries

Regarding #1, we are already beginning to see hints of this development in the press:

DEATH OF THE EURO: SECRET PLOT TO WRECK THE CURRENCY

Ministers are understood to be deeply concerned that French President Nicolas Sarkozy and Germany's Chancellor Angela Merkel are secretly plotting to build a new, slimmed down Eurozone without Greece, Italy and other debt-ridden southern European nations.

Well-placed Brussels sources say Germany and France have already held private discussions on preparing for the disintegration of the Eurozone.

http://www.express.co.uk/posts/view/283060

FRENCH AND GERMANS EXPLORE IDEA OF SMALLER EURO ZONE

German and French officials have discussed plans for a radical overhaul of the European Union that would involve setting up a more integrated and potentially smaller Euro zone, EU sources say.

"France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.

"We need to move very cautiously, but the truth is that we need to establish exactly the list of those who don't want to be part of the club and those who simply cannot be part," the official said.

http://www.reuters.com/article/2011/11/09/us-Eurozone-future-sarkozy-idUSTRE7A85VV20111109

With no one willing to foot the bill for the EFSF the markets are hoping Germany will step in and save the day. However, the German constitution forbids Germany from backing Euro-bonds.

German EconMin: court verdict rules out Euro bonds

German Economy Minister Philipp Roesler said on Thursday the constitutional court's ruling on Euro aid made it clear that joint Euro zone bonds were not an option.

Addressing left-wing opposition parties in the Bundestag lower house of parliament, Roesler said: "You continue to talk up Euro bonds although the constitutional court yesterday made it clear that as transfer union such as the one you propose on the left will never be possible, never be allowed."

"We don't want it politically, either, and we will not let the German taxpayer be obliged to pay for the debt of other countries," he said in a parliamentary budget debate.

http://www.reuters.com/article/2011/09/08/Eurozone-germany-Eurobonds-idUSB4E7K600L20110908

Moreover, Germans will simply not permit the monetization of debt. Weimar's hyperinflation happened in the early 1920s and is still fresh in the memories of the German people (those who lived through it undoubtedly told their children and grandchildren about it). So the German people will not tolerate price instability in any form.

Germany is not alone in having little or no desire to attempt to backstop the system. Indeed, NONE of the G20 countries wish to support the EFSF from a monetary standpoint (yet another sign that the bailout game is ending).

No new Euro zone money for debt crisis at G20

The Euro zone won verbal support but no new money at a G20 summit on Friday for its tortured efforts to overcome a sovereign debt crisis, while Italy was effectively placed under IMF supervision.

Leaders of the world's major economies, meeting on the French Riviera, told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.

"There are hardly any countries here which said they were ready to go along with the EFSF (Euro zone rescue fund)," German Chancellor Angela Merkel told a news conference.

http://www.reuters.com/article/2011/11/04/us-g-idUSTRE7A20E920111104

So... everyone claims they want to support the EFSF... but no one wants to commit the money. Moreover, Germany's constitution forbids the backing of Euro bonds... and the EFSF itself has failed to stage even a three billion Euro bond offering under normal market conditions.

Again, the bailout game is ending. Under these conditions, I believe Germany and France will push to either:

1) Leave the EU

2) Draft legislation that allows countries to leave the Euro but remain in the EU

3) Propose kicking out the PIIGS from the Euro

Whichever one of these options Germany opts for, the Euro will collapse. Indeed, the primary reason the Euro has been rallying since October is due to French banks and others selling assets (buying Euros) to recapitalize themselves.

Put another way, the Euro rally is in fact NOT a sign of currency strength. Instead, it is a sign that the major players are moving to cash (Euros) in an attempt to lower their exposure to PIIGS' debt.

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, crisis, Euro crisis, Euro default, stocks

# posted by Generalfoundation @ 7:22 AM 0 comments

The markets are rallying hard today for three reasons:

1) Traders gaming the usual manic Monday

2) The markets were oversold having fallen six straight days

3) Short covering

These are the real reasons the market is exploding higher. Traders are simply using the (since refuted) IMF bailout of Italy rumor to gun the usual manic Monday rally and shred the shorts.

Technically, we were oversold and at support. So a bounce of some note here makes sense. However, a 3% rally? On rumors of an Italian bailout? Give me a break.

Regardless, this overnight move has already brought us up to resistance for the S&P 500. So we could easily see a reversal at any time.

The Euro also looks to be putting in a dead cat bounce:

I've received a few emails recently about my pessimism regarding the markets, even when stocks rally. The reason I am so pessimistic is because the bond markets, credit markets and interbank liquidity indicate that the situation in Europe is now into "2008 mode".

Indeed, Treasuries have already exceeded their 2008/2009 peak. Tell me, what do you make of a situation in which the bond markets (which are far larger than stocks) are acting as though we're in a Crisis worse than 2008... which stocks are rallying?

If you'll recall from 2008, stocks rallied and held up much, much longer than the bond or credit markets. For that reason stocks are a terrible indicator of the real state of the financial system... which is why I remain so deeply concerned about the markets even though stocks have staged several very sharp rallies.

The reality for Europe is very, very grim. Among other items, we've recently seen:

1) Italy's 10 year note pass 7% in yield (the end of the line level)

2) Germany post a failed bond auction

3) The EFSF plan scaled back with less leverage

4) German companies warning their Greek subsidiaries to prepare for contracts that are based in Drachma, NOT Euros

5) Germany hint that it will leave the Euro if the ECB prints money

6) The currency trading house ICAP prepare for the dissolution of the Euro

Do you still think stocks "get" what's happening today?

The reality is that we are already into a full-scale Crisis in Europe. Do you remember warnings of riots and systemic collapse in 2008? Well, we're getting those this time around. Do you think these folks are issuing these warnings because we're going to get through this mess easily?

Labels: economy, Euro crisis, Euro default, europe, stocks

# posted by Generalfoundation @ 8:22 AM 0 comments

Europe is done. Finished.

The powers that be over there have completely lost control of
the markets. Germany just staged a horrific bond auction and
the ECB is intervening several times a day to stop Italy's bond
market (the world's 3rd largest) from imploding.

And that's just the tip of the iceberg.

The debt contagion has now spread to Spain, Italy, and even France.
It's quite possible France will lose its AAA rating in the near future.
We also have Germany threatening to leave the Euro outright if
the ECB prints money.

Which means... it's the End Game. No matter what, the defaults are
coming and the Euro will implode.

This is the reality for Europe. The whole system will be going down,
it's only a matter of time. And when it does collapse, it's going to
make Lehman Brothers look like a joke.

I know the markets have yet to fully realize this... but it took them a while
to realize 2008 as well. And when they did, things moved VERY quickly.

So if you have not already taken steps to prepare for systemic failure,
you NEED to do so NOW. We're literally at most a few months, and
very likely just a few weeks from Europe's banks imploding.

Take steps to prepare our loved ones and personal
finances for systemic risk:

You need to know:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

ask me at: generalfoundation@safe-mail.net

Labels: Crash, crisis, Euro crisis, Euro default, risk

# posted by Generalfoundation @ 7:42 AM 0 comments

Stocks broke down in a big way last week as the situation in Europe has become truly dire. I'll be addressing that situation in greater detail soon, but for now, you should know that there are truly only two possible outcomes for the Euro:

1) The ECB prints money and Germany leaves the EU

2) Germany remains in the EU but moves to kick other countries out as the defaults start coming fast

POINT

The market has already proven that the EFSF won't save the Euro. And Italy, the third largest bond market in the world, is creeping towards a default by the minute. So the above outcomes are the only realistic options that are left. And both of them will send the Euro, and stocks, lower in a big way.

On that note, the S&P 500 broke down last week as the descending trendline (black line) from the July top proved to be too much for this latest rally to overcome. We've now taken out the lower trendline (green line) that supported stocks since October as well as critical support (red line) formed by the trading range that dominated the market's action from August through October.

Once we get a definitive move below the red line in the chart above, then the door is open for us to test support at 1,175 and possibly even 1,125 in short order.

This is a holiday week so trading volume will be light. However, recall that it was during Thanksgiving 2009 that the sovereign defaults first started when Dubai asked for an extension on $60 billion in debt. Will we get a European version of the Thanksgiving day collapse this time around with Italy? It's definitely possible as the ECB is now intervening on a daily basis to slow down the bond implosion over there.

On that note, both Gold and Silver are looking deflationary... or at least undergoing liquidations.

Remember, defaults are deflationary in nature, and given that Europe is literally on the brink of systemic failure, Gold and Silver's recent action may be hinting that we're about to see another round of defaults/ deflation in the markets.

After all, when you combine the situation in Europe, along with the ongoing Depression in the US, MF Global's bankruptcy, and the fact that most institutional investors remain heavily invested to the long-side (opening the door for intense selling pressure as everyone has gone "all in"), you've got a recipe for a REAL collapse.

So, just be aware that if things get messy, the markets could get downright UGLY fast. Leverage levels today exceed those of the Tech bubble. And we've already had one player taken out by bad bets (MF Global).

Labels: chaos, Crash, Euro crisis, Euro default

# posted by Generalfoundation @ 7:41 AM 0 comments

There are two primary stories for the markets today. They are:

1) The political/ financial reality facing Europe

2) The US stock market rally

Regarding #1, it is clear as day that the EU in its current form is finished. I've been saying this for months, but now even the mainstream media is picking up on rumblings that Germany wants to exit the Euro or at least restructure the entire EU.

DEATH OF THE EURO: SECRET PLOT TO WRECK THE CURRENCY

Ministers are understood to be deeply concerned that French President Nicolas Sarkozy and Germany's Chancellor Angela Merkel are secretly plotting to build a new, slimmed down eurozone without Greece, Italy and other debt-ridden southern European nations.

Well-placed Brussels sources say Germany and France have already held private discussions on preparing for the disintegration of the eurozone.

http://www.express.co.uk/posts/view/283060

FRENCH AND GERMANS EXPLORE IDEA OF SMALLER EURO ZONE

German and French officials have discussed plans for a radical overhaul of the European Union that would involve setting up a more integrated and potentially smaller euro zone, EU sources say.

"France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.

"We need to move very cautiously, but the truth is that we need to establish exactly the list of those who don't want to be part of the club and those who simply cannot be part," the official said.

http://www.reuters.com/article/2011/11/09/us-eurozone-future-sarkozy-idUSTRE7A85VV20111109

The reality of the Eurozone is as follows:

1. Germany cannot and will not permit debt monetization to take place and so will back out of the Euro rather than foot the bill for other countries. With Weimar still present in the public's conscious, the German populace simply will not stand for inflation of any kind.
2. The leveraged EFSF has already failed. It's already failed to auction even 3 billion Euros' worth of bonds... and it's supposed to raise over 1 trillion!?! Add to this the fact that no G20 countries want to support it and the EFSF is FINISHED.
3. Greek will default again. Italy will default. Spain and the other PIIGS will default. The Euro will collapse.

These are the facts. Everything else (political elections, austerity measures, etc) is just a distraction. The whole mess is just like 2008 when the plain simple truth was in front of all of us though 99% of the pundits focused on the various distractions (Wall Street CEOs saying the worst was over, Hank Paulson's Bazooka, etc).

And Europe can, at best, hope to replicate what happened to the US in 2008. It's entire banking system is too leveraged. And now we're talking about entire countries going bankrupt.

Now for the other story in the markets today: the stock market rally which is based on fantasy and dreams.

I've heard every excuse for this move ranging from "QE 3 is just around the corner" to "the leveraged EFSF will work," but I've yet to hear anything fact-based that justifies this move as being something more than short covering and the usual bear market rally.

Let's take a look over what's happened since the market bottomed in early October:

1) Greece defaulted

2) Italian bonds imploded

3) The EFSF failed to raise even 3 billion Euros

4) French/German bond spreads hit all time highs

5) The Fed re-opened swap lines to Europe AND the Bank of Japan

And stocks have rallied 14% on these developments?

Do people forget that during the 2008 debacle the market rallied 11%, 17%, even 20%?

Having said all of that, stocks look to have formed a triangle pattern, which presents the possibility of a final thrust up, possibly to 1,300 on the S&P 500.

This move will likely be followed by a very sharp sell-off. With stocks tracking the Euro, it's worth noting that a head and shoulders pattern is forming in European currency.

Folks, here's the deal: the EU is out of options and out of time. Yes, we've seen some symbolic shifts in the political landscape, but the reality is:

1) The EFSF CANNOT raise the funds it needs to bail out Europe

2) Germany WILL NOT monetize the PIIGS' debt

3) Greece will stage an even greater default, as will the other PIIGS nations

The powers that be know it. Why do you think China is importing a record amount of Gold... because they believe in the Euro? Weren't they the ones who were supposed to save Europe?

The reality is that the powers that be (the Federal Reserve and ECB) are fast losing control of the system. Bernanke's already admitted he hasn't got a clue how to solve the financial system's problems. The Bank of England says we're facing the greatest financial crisis in history. Even the IMF has warned that we're heading towards a global financial meltdown.

Folks... these organizations don't issue warnings like this just for fun. They're the ones who are SUPPOSED to SAVE the system. Do you think they're issuing these warnings because everything is fine?

So ignore stocks. I know, I know, they've made a huge move to the upside. But that huge move was just 14%... and we had rallies of 17% and 20% in 2008. How did those work out? Were they a good time to buy stocks?

Again, the EU will be broken up in the coming weeks. When it is, this market rally will collapse. And the ensuing carnage will make 2008 look like a joke.

So if you've not already taken steps for what's coming, the time to do so is NOW before the real mess begins.

Labels: chaos, Euro crisis, Euro default

# posted by Generalfoundation @ 3:45 AM 0 comments

I have been warning for days that stocks are the last to "get it" and that this latest rally should not be trusted.

Well, by the look of things, stocks are finally waking up to what the credit and bond markets have been telling us for weeks: That the European debt-implosion has now shifted from a relatively small problem (Greece) to a MAJOR problem (Italy).

Remember, worldwide exposure to Greece is roughly $280 billion. Worldwide exposure to Italy is more than THREE TIMES this. Italy is the third largest bond market in the world (behind Japan and the US). So when it implodes, the whole financial system shakes.

Well, according to Barclay's Italy has now gone "mathematically beyond the point of no return."

Italy is the REAL systemic risk today. The Italian ten-year note just cleared 7.2% earlier this week. Once it clears 8% it's GAME OVER for Italy. And the EURO will go down.

Labels: Euro crisis, Euro default, Italy

# posted by Generalfoundation @ 4:28 AM 0 comments

One of the key items that few investors seem to be focusing on is the fact that while the system is awash with liquidity, there is very little capital available. Indeed, the great irony of central bank policies in the post-2008 era is that despite flooding the system with cheap easy money, they've not actually done anything to lower leverage or raise capital.

Case in point, the European Financial Stability Facility (EFSF) which is supposed to be the ultimate backstop for the European banking system, is in fact nothing more than a super-leveraged investment vehicle backstopped by bankrupt nations.

In plain terms, certain less insolvent nations (Germany and France) are supposed to bail out more insolvent nations such as Greece and Ireland. Common sense tells us this can't possibly work.

The EFSF is supposedly going to raise 1 trillion Euros... in an environment in which it struggles to even stage a five billion Euro bond offering? Give me a break.

Again, while the system is flooded with liquidity, actual capital that can be put to use is virtually non-existent. The entire financial system is built up on leverage and easy credit, NOT capital.

This is why the bailouts cannot work. You cannot solve a leverage problem with more cheap debt. Just look at Greece. That whole mess started in January 2010... two bailouts and a number of write-downs later the country is still broke.

And somehow this policy is going to work for other countries such as Italy or Spain? Give me a break. The Euro in its current form is finished. The credit markets are already pricing in more Greek defaults. And Italy's now lurching towards its own default.

Ignore stocks, they're ALWAYS the last to "get it." The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.

Labels: Euro default, Greece, money, rescue

# posted by Generalfoundation @ 6:57 AM 0 comments