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Greece is Not Lehman 2.0... As I'll Show You, It's Far Far Worse...

noreply@blogger.com (Generalfoundation) — Thu, 16 Feb 2012 17:19:00 +0000

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.

The Triumvirate of Wall Street/ The Fed/ and the White House is Beginning to Crumble

noreply@blogger.com (Generalfoundation) — Tue, 14 Feb 2012 14:49:00 +0000

The Obama administration, as it pursues re-election in 2012, is doing all it can to claim that the US economy is in fact not quite as bad as previously thought. One of the tactics is to massage GDP and jobs data. True, this practice has been in place for over a decade, but the recent January jobs report from the BLS has set, shall we say, a new high-water mark for "adjustments."

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.

Greece has No Idea What It's Gotten Itself Into

noreply@blogger.com (Generalfoundation) — Fri, 10 Feb 2012 14:40:00 +0000

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:

Passed legislation permitting it to leave the Euro without leaving the EU.
Passed legislation permitting it to nationalize German banks during times of Crisis.
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".)

In plain terms, Germany is going to look after its own domestic interests.

Put another way, if Greece wants to remain Greece it's no getting any more funds and its bond markets will implode. The alternative is that if Greece wants German funds, it's going to have to give up its fiscal sovereignty and essentially become a vassal state for Germany. End of story.

With that in mind, I believe the next round of the Euro Crisis is now at our doorstep. Indeed, this latest short-covering rally in the Euro (Euro shorts were at a record high) looks ready to end and reverse.

So if you think the EU Crisis is over, think again. True we've got until March 20th for the Greek deal to be reached, but things have already gotten to the point that Germany has essentially issued its ultimatum. Either Greece hands over fiscal sovereignty, or it defaults in a BIG way.

Why Notions of Systemic Failure Are On Par with Bigfoot and Unicorns for Most Investors

noreply@blogger.com (Generalfoundation) — Thu, 02 Feb 2012 19:54:00 +0000

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:

Have never witnessed nor invested during a bear market in bonds
Have never witnessed, nor invested during a credit market collapse
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:

US commercial banks currently sit atop $248 TRILLION in derivatives
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)
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?)
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.

The Fed Cannot Act Without a Crisis... And One is Coming

noreply@blogger.com (Generalfoundation) — Thu, 26 Jan 2012 18:54:00 +0000

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.

They do NOT get it

noreply@blogger.com (Generalfoundation) — Mon, 23 Jan 2012 18:50:00 +0000

The market is rallying... again... on hopes of a Greek deal... and QE 3.

This is the very same game we've been playing for over two years now. Greece is broke. Everyone knows it. The Greeks know it. Greek politicians know it. EU politicians know it. Even the IMF knows it. The only people who don't seem to "get it" are stock investors that invest for one reason only:

1) The hope of more juice/ intervention from Governments/ Central Banks

That one sentence dictates ALL market action today: the hope of a stupid policy (spending more money), which has failed to solve anything. It's amazing that this is what the markets have become. What's even more amazing is that people are actually paid (large salaries) to engage in this stupid behavior.

Honestly, how many times have we heard rumors that Greece was solved? How many "officials" claimed a deal was close? How many investors bought based on these outright lies?

Moreover, it's not as though the actual proposals that do get announced are worth the paper they're written on. A 50% haircut on private bondholders of Greek debt accomplishes nothing (Greece's Debt to GDP would still be north of 120%). The only way Greece gets back to some semblance of solvency is a complete and total wipe out of all debt other than that held by the Troika (though they should take a hit as well).

This whole mess will end terribly. Greece will default. The default will be bigger than 50% (likely 70-80%). Italy, Spain, and other EU members will default as well. This will happen. There is no question about it.

However, right this week, the market is waiting for more juice from the Fed's Jan 25 FOMC and the hope of a Greek deal out of Europe. For that reason stocks have gone almost straight up for the last two weeks.

By the look of things we've got a messy bearish rising wedge here. We're now testing resistance in the form of the upper trendline.

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.

Germany's Fed Up and Getting Ready to Walk

noreply@blogger.com (Generalfoundation) — Wed, 18 Jan 2012 12:35:00 +0000

For months I've been warning that when push come to shove Germany will bail on the Euro.

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.

EU Central Banks Are Already Preparing For a Euro Breakup

noreply@blogger.com (Generalfoundation) — Fri, 13 Jan 2012 14:44:00 +0000

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.

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noreply@blogger.com (Generalfoundation) — Thu, 12 Jan 2012 18:31:00 +0000

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Nothing Changed

noreply@blogger.com (Generalfoundation) — Mon, 09 Jan 2012 11:31:00 +0000

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.

F.R.E.E. Money for F.R.E.E Members Guaranteed

noreply@blogger.com (Generalfoundation) — Thu, 05 Jan 2012 18:48:00 +0000

Click the image!

We've Reached the End Game for Central Bank Intervention.

noreply@blogger.com (Generalfoundation) — Wed, 21 Dec 2011 12:26:00 +0000

When confronted with excessive debt, you can either "take the hit" or you can try to inflate the debt away.

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.

Deflation

noreply@blogger.com (Generalfoundation) — Mon, 19 Dec 2011 11:21:00 +0000

The markets have entered a new round of deflation. The only asset class that has yet to realize this is stocks.

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.

European Corporations Are Preparing For the End of the Euro

noreply@blogger.com (Generalfoundation) — Tue, 13 Dec 2011 12:25:00 +0000

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.

Read This and Tell Me Germany Will Remain in the Euro

noreply@blogger.com (Generalfoundation) — Thu, 08 Dec 2011 11:52:00 +0000

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.

Europes Banks ARE insolvent

noreply@blogger.com (Generalfoundation) — Mon, 05 Dec 2011 18:14:00 +0000

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.

What Does the Fed Know That We Don't?

noreply@blogger.com (Generalfoundation) — Thu, 01 Dec 2011 19:15:00 +0000

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.

How the European End Game Will Play Out...

noreply@blogger.com (Generalfoundation) — Tue, 29 Nov 2011 15:22:00 +0000

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.

Don't be fooled!

noreply@blogger.com (Generalfoundation) — Mon, 28 Nov 2011 16:22:00 +0000

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?

Six Plays On the European Banking Collapse

noreply@blogger.com (Generalfoundation) — Thu, 24 Nov 2011 15:42:00 +0000

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

Default and Failure, Euro OUT

noreply@blogger.com (Generalfoundation) — Mon, 21 Nov 2011 15:41:00 +0000

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).

A GLOBAL EPIDEMIC

noreply@blogger.com (Generalfoundation) — Wed, 16 Nov 2011 18:36:00 +0000

Government's & Corporations around the world
are awakening to a new epidemic sweeping the globe...

== http://planb.us.tc ==

Ordinary people like me (and you) are
realizing that 'They' Don't have our
best interests in mind.

The whole system they've set up is to enslave us...

so how do you break free?
this is how:
==! http://planb.us.tc !==

see you on the inside,
Maria

The EURO is finished

noreply@blogger.com (Generalfoundation) — Mon, 14 Nov 2011 11:45:00 +0000

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:

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.
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.
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.

The Third Largest Bond Market in the World is Imploding

noreply@blogger.com (Generalfoundation) — Thu, 10 Nov 2011 12:28:00 +0000

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.

The EFSF Deal is a Joke: Europe is Broke

noreply@blogger.com (Generalfoundation) — Fri, 04 Nov 2011 13:57:00 +0000

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.