I have a sinking suspicion – a feeling I just can’t shake – based on multiple fundamental, technical, and timing indicators….[that] the end is near. I’m not talking about some Mayan calendar apocalypse kind of thing….[but] a catastrophic, painful, epic meltdown-type endgame for this European sovereign debt crisis…[[Let me explain why I see that to be the eventual outcome.] Words: 810
So says Mike Larson (www.moneyandmarkets.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Larson goes on to say, in part:
Why?…Well, for the better part of two years, European fiscal and monetary policymakers have been trying everything they can to achieve the impossible:
- They have tried to hold back a tidal wave of delinquencies, defaults, recessions, banking failures, and more tied to the gargantuan build up of unpayable debts and other obligations continent-wide!
- They have held summit after summit, cooked up plan after plan, conjured up bailout fund after bailout fund.
- They have spent hundreds of billions of euros propping up Greece, Ireland, and Portugal. Now, Spain and even lowly Cyprus are knocking at the door, seeking tens and tens of billions of euros MORE in aid.
- Meanwhile, the European Central Bank steered hundreds of billions of euros in cheap money to banks in troubled PIIGS countries. Those banks took the 1 trillion euros in LTRO cash and turned around and bought the bonds of their troubled sovereign overseers.
It worked for a few months but the stop-gap measure to drive down government funding costs has now failed miserably, with borrowing costs at, or near, fresh, pre-LTRO highs in Italy and Spain. Worse, it left those banks even MORE exposed to massive losses.
- Spanish banks now reportedly need anywhere from 62 billion euros to 100 billion euros in additional funds to shore up capital, a hole that will likely only grow – and the list of banking casualties keeps getting longer.
- Italy has had to bail out the oldest bank in the world, Banca Monte dei Paschi di Siena, with 3.4 billion euros in fresh funds. The Tuscan institution was founded in 1472, 20 years before Christopher Columbus first sailed to America!
All of this wasted time, money, and effort has been designed to stave off the now clichéd “Lehman Moment.” Unfortunately, these guys just don’t get it. It’s like standing on the beach with your palm out, trying to stop the tide from washing away your sandcastle. It simply won’t work, because the incoming waves of financial disasters are just too powerful! Many on Wall Street aren’t ready to admit this to themselves but I’m not one to mince words. I’ve been saying that policymakers are out of bullets for some time, most recently a few weeks ago, when I explained why I couldn’t care less WHAT the Fed did at its June meeting.
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The post-Fed reaction only confirms to me that I’m on the right track. Ben Bernanke announced an extension of the Fed’s “Operation Twist” program after the meeting….which will entail the Fed buying another $267 billion of longer-term Treasuries – and selling an equivalent amount of shorter term Treasuries – in an effort to suppress long-term rates and support the economy.
What did the markets do in response? They shrugged their shoulders and promptly rolled over! That’s because savvy investors know that “Twist 2″ will prove to be just as useless as the previous $400 billion “Twist 1″ program was (not to mention QE1 and QE2) in fueling a lasting economic turn.
Heck, even the “central bank of central banks” — the Basel, Switzerland-based Bank for International Settlements — is now coming around to my view. In a shocking annual report released a few days ago, the BIS concluded that “central banks are being cornered into prolonging monetary stimulus as governments drag their feet” but that “both conventionally and unconventionally accommodative monetary policies are palliatives and have their limits.”
I believe we are close to the point where the investing world wakes up to an uncomfortable reality. Namely, that we’re operating without an effective government- or central bank-provided safety net. Many governments are either flat broke or politically hamstrung from acting, while the vast majority of central bankers have no more tools in their toolboxes.
If you thought the 2,000-point, two-week swoon in the Dow Jones Industrial Average last summer was bad … or if you thought the May 2010 “Flash Crash” and its aftermath was ugly … get ready. We may be very close to a replay of 2008, one that would make those declines pale in comparison – yet complacency still reigns on Wall Street that some kind of epic “save” is right around the corner.
My advice is to take protective steps now. Bag more profits. Add some cheap downside put options, or inverse ETF positions, for protection. Then look for more urgent warnings right here in these cyberpages because I really, truly, honestly can’t shake the feeling we’re on the verge of something potentially very, very big.
*http://www.moneyandmarkets.com/endgame-approaching-in-europe-and-a-market-collapse-looming-49948 (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
I’ve often been labeled as “Gloom and Doom” in the past, but the situation in Europe today is beyond anything I’ve ever seen before. It is highly likely that the EU will not exist in their current form by the end of the year. I realize some of this may sound overly dramatic but the following should give you an idea of how serious things are getting: [Words: 715]
Cyprus has beat Italy to officially become the fifth eurozone bailout nation after Ireland, Portugal, Greece and Spain…but Spain is the one causing the most anxiety because it’s economy is Europe’s fourth largest – larger than the other four euro bailout sisters combined….Sadly, judging from the current debt situation (see graph below), the Euro bailout train most likely will not stop here [and, as a result, we are in for years of eventual de-leveraging, likely deflation and sovereign declines. Let me explain.] Words: 485
We’re coming to the end of government’s ability to borrow money to fund current spending that’s beyond the growth of their economy….and I actually find that massively bullish because that government funding misallocates capital. It’s going to end in the next 2 or 3 years, Europe first, then Japan, then the US….
…The US Government and its catastrophic fiscal morass are now viewed by the world as a ‘safe haven’. This would easily qualify for a comedy shtick if it weren’t so serious….[but] the establishment is thrilled with these developments because it helps maintain the status quo of the dollar standard era. However, there are some serious ramifications that few are paying attention to and are getting almost zero coverage from traditional media. [Let me explain what they are.] Words: 1150
Jim Sinclair is now warning… that ‘The end is not near, it is here and now’ in reference to the global financial system…[and] reiterating his long held view that there will be “QE to infinity” despite the denials of Bernanke and other central bankers. [He also has some interesting things to say about gold and alarming things to say about the euro. Read on.] Words: 305
“The financial markets continue to show extreme volatility as the various institutions and governments deal with the end of their respective roads….Governments, economies and societies are converging on a common dead end, and it is a dead end of historic proportions….There will come a moment when this dysfunctional system can be sustained no longer. It is not inevitable. There is still time for rational behavior and solutions, but that time is short.”
“Either you take the debt clean-out right away, and that means a very hard deflationary depression, or you do what I suspect they will try to do and that is keep pumping money into the system to keep the whole banking (system), derivatives and economies afloat [and] that will lead to some sort of monetary distress that could end in hyperinflation. I think that’s the worst outcome, but there is no good outcome.”
Even as I write these words, the world’s largest economy — the E.U. — is coming unglued at the seams, the world’s second largest — the U.S. — is careening headlong toward a fiscal cliff that promises to gut its GDP, nearly all of Asia — including Japan, China and India — is slowing…and yet most investors still don’t get the message. [Let me go on to explain just what that message is.] Words: 1357
Why are both debtors and creditors willing to build a status quo of massive unprecedented debt? [After all, the delusions of] creditors that debt is wealth and should never be liquidated, and of debtors that debt is an easy or free lunch have been smashed by the juggernaut of history many times before…[and] I think they will soon be smashed again. [Let me explain.] Words: 1150
The deficits aren’t going to stop anytime soon. The debt mountain will keep growing…Obviously, the debt can’t keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things….The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for….[and] the Federal Reserve will hear their prayer. When will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement. [Let me explain what I expect to unfold.] Words: 1833