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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

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

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

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

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

The thought that should be on every investor's mind today is "Why did the Fed have to stage the coordinated intervention yesterday?'

Put another way, what exactly does the Fed know that we don't?

The whole thing smells fishy to me. Aside from the fact that the Fed clearly leaked its intentions as early as Monday night (hence the reason stocks rallied while credit markets weakened), there's something peculiar about the fact the Fed chose to do this at the end of November.

Why November 30? Why not today or Tuesday?

I think the answer is that the Fed stepped in to help its institutional investor/ hedge fund buddies. November was a horrible month for this crowd. And with Bank of America approaching $5 per share (a level which would require many institutions to liquidate due to regulations), the Fed was also helping out its favorite insolvent bank as well.

Aside from this, Europe was approaching the End Game. Germany won't permit the ECB to print nor to issue Euro-bonds. The EFSF plan was dead before arrival, failing to even stage a 3 billion Euro bond auction without having to step in and buy the bonds itself. And the IMF wasn't going to be an option either.

Put another way, ALL other bailout options had failed for Europe. The Fed was the lender/ intervener of last resort. That alone should have everyone worried as it indicates just how dire things had become in Europe.

However, there's something far more worrisome about the Fed's move which is that: IT SOLVES NOTHING.

Europe is facing a solvency crisis. Lowering the cost of borrowing Dollars does absolutely ZERO to help European banks raise capital. All it does is provide even more easy credit... which of course is the entire problem to begin with.

Banks across Europe are leveraged at an average of 26 to 1. This means that they own 2,600 times more assets (read: loans made to consumers, businesses, etc) than they do have equity.

At these leverage levels, if the assets fall even 4% in value, you've wiped out ALL equity, rendering the bank bankrupt!

In this situation, providing more liquidity to these banks helps in terms of short-term operations, but it does nothing to address the core issue which is too little capital and too much leverage.

So this move, as dramatic as it was for the stock market has done NOTHING to solve Europe's solvency crisis.

Indeed, we have reports that a large European bank was on the verge of collapse last night. Things are so bad that Germany has drawn up legislation to allow countries to leave the Euro while remaining in the EU.

I believe Germany itself will be using this option in the next few weeks as it realizes that it cannot and will not be able to prop up the Euro any longer (even Germany doesn't have the 1 TRILLION Euros' in capital that European banks need).

So do not be fooled. The Fed's move didn't fix anything. At most its bought the markets a few weeks' time before the whole mess comes crashing down.

So if you have not taken steps to prepare for this, the time to do so is now.

I can show you how.

Labels: Crash, crisis, Euro crisis, Euro default, liquidity, stocks

# posted by Generalfoundation @ 11:15 AM 0 comments