Tuesday, May 22, 2012
May 22, 2012 Neither the Fed Nor the ECB Will Be Able to Stop What's Coming
- Gas being at $4 and food prices not far from record highs.
- This being an election year and the Fed now politically toxic.
- Growing public outrage over the Fed's actions (secret loans, etc.) in the past.
Labels: collapse, Crash, credit, Crisis Crash, Debt crisis, Default, Dollar, Euro Collapse, Euro crisis, Euro default
Thursday, May 03, 2012
Merkel's In Hot Water... So No More Bailouts... Sorry Spain
Spain, which is now at the forefront of the Great Western Debt Default Collapse, has opted to seek funding from the mega-bailout fund, the European Stability Mechanism (ESM) rather than going directly to the ECB or the IMF.
The reasons for this are clear: the IMF doesn't have the funds (nor will it as the US won't fund a European bailout during a Presidential election year). And the ECB is now backed into a political corner with Germany.
However, Spain is discovering that even ESM funding doesn't come without strings attached:
Germany Rejects Spain Banks Tapping Bailout Fund, Meister Says
Spain's rating downgrade at Standard & Poor's doesn't alter Germany's stance that banks can't have direct access to Europe's financial backstops, a senior lawmaker from Chancellor Angela Merkel's party said.
"The German position is absolutely strict," Michael Meister, the deputy caucus chairman of Merkel's Christian Democrats, said in a phone interview in Berlin. "And since such aid programs require unanimity, there's not going to be any change. All sorts of people can try to set things in motion, but Germany won't vote for it."
http://www.bloomberg.com/news/
The ESM funding idea is really just Spain playing for time (the ESM doesn't actually have the funds to bail Spain out). But the fact that Germany is now making the ESM a political issue indicates the degree to which political relationships are breaking down in the EU. And once the political relationships break down... so will the Euro.
Indeed, Germany has no choice. If it decides to prop up Spain it will receive a ratings downgrade (something which France is about to experience anyway). Europe with a downgraded Germany is not a pretty sight.
Moreover, Germany's decision to prop up the Euro is finally beginning to arouse furor from the German population. In particular, the below story which reveals that Germany has in fact put German taxpayers on the hook for over €2 trillion in back-door EU rescue measures could be the proverbial tipping point that sends German voters over the edge.
German tempers boil over back-door euro rescues
Professor Hans-Werner Sinn, head of Germany's IFO Institute, said German taxpayers are facing a dangerous rise in credit risk from a plethora of bail-out schemes. "The euro-system is near explosion," he told Austria's Economics Academy on Thursday.
Dr Sinn said Germany is on the hook for much of the €2.1 trillion (£1.72 trillion) in rescue measures for EMU debtors - often by the back-door - that will saddle Germans with ruinous losses one day.
"It is a horror scenario," he said, warning that the euro system is splitting friendly countries into blocs of mutually hostile creditors and debtors, exactly the opposite of what was hoped.
Earlier this week, the Foundation for Family Business in Munich filed a criminal lawsuit against the Bundesbank, accusing the board of disguising the true scale of risk born by German citizens.
http://www.telegraph.co.uk/
This is the last thing Angela Merkel needs right now. Between this and inflation arising in Germany she's in major political hot water. So expect Germany to push even harder when it comes to fiscal austerity in the future...
On that note, I fully believe the EU in its current form is in its final chapters. Whether it's through Spain imploding or Germany ultimately pulling out of the Euro, we've now reached the point of no return: the problems facing the EU (Spain and Italy) are too large to be bailed out. There simply aren't any funds or entities large enough to handle these issues.
Labels: Debt crisis, Default, Deflation, End game, Euro default, Euro finished, europe, point of no return
Thursday, March 15, 2012
The Big Fat Greek Lie Is Now Obvious to Spain... So Who's Next to Default?
The big fat Greek lie being spread throughout the financial community is that "Greece has been saved". It's a lie for the following reasons:
1) Greece did in fact default.
2) Greece now has more debt than it did before the bailout (how does writing off €100 billion Euros in debt and taking on €130 billion Euros in more debt improve this situation?)
3) The Greek economy continues to implode (youth unemployment over 50%, one in ten Greek youth looking for jobs abroad, Greek GDP fell 7% in 4Q11)
4) This Second Bailout was indeed a "Credit event" which the markets have yet to discount (though German investors are already lining up litigation)
5) Germany's finance minister has already admitted Greece may need a third bailout.
Anyone who thinks that Greece is better off, let alone "saved" is out of their minds. The Euro may have been saved for a few more weeks/ months. But Greece is in worse shape than ever.
Indeed, if anything, the Greek situation has made it clear that the whole "give up fiscal sovereignty and implement austerity measures in exchange for bailouts" formula is a waste of time and money. Let's take a look at the progression here.
1) Greece claims it doesn't need a bailout at all (January 2010-March 2010)
2) Greece begins to ask for a bailout (April-May 2010)
3) Greece gets a bailout equal to 57% of its GDP (May 2010)
4) Greece posts a GDP of -4% in 2010
5) Greece announces it won't be able to meet budget requirements/ payback the first bailout on time and asks for an extension (January-February 2011)
6) Greece asks for another extension (May 2011)
7) Talk of Second Greek Bailout begins (July -October 2011)
8) Greece posts a GDP of -6.5% in 2011
9) Second Greek bailout announced/ finalized (February/March 2012)
10) Talk of third Greek bailout begins (March 2012)
No other EU country could look at this progression and think "this looks like a good approach." Indeed, Spain and Italy must be watching what's happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures or not?
Labels: Crash, crisis, Debt crisis, depression, Euro Collapse, Greece, Greece bailout
Thursday, January 26, 2012
The Fed Cannot Act Without a Crisis... And One is Coming
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
Friday, January 13, 2012
EU Central Banks Are Already Preparing For a Euro Breakup
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
Wednesday, December 21, 2011
We've Reached the End Game for Central Bank Intervention.
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
Monday, December 19, 2011
Deflation
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
Tuesday, December 13, 2011
European Corporations Are Preparing For the End of the Euro
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.
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.
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
Thursday, December 08, 2011
Read This and Tell Me Germany Will Remain in the Euro
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.
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.
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/
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
