the blizzard, holidays, and so forth, EVERYTHING that occurs in the markets
this week is largely irrelevant. Once the holidays end, we’ll be back to
reality in short notice.
is that situation in Europe has literally reached a fever pitch. We have now
progressed to the “contagion” point in which the entire system is at risk
versus individual countries. To
whit, Ireland has only just been bailed out and already Spain, Italy, Portugal,
odd is the fact that anyone is surprised by this turn of events. We played out
this exact same drama from 2007-2008 in the US. Throughout 2007 to 2008 Ben
Bernanke and Hank Paulson assured us that the Financial Crisis was largely
“contained” and would not “spill over” into the US economy.
was maintained even as contagion spread. I recall (as I’m sure you do) that
with each successive bailout the problems were deemed solved. At one point we
had weekly proclamations that “the worst [was] over” from various Wall Street
whole thing came crashing down.
conclusions to draw from that period in the US are:
successive bailout will produce smaller and smaller effects until systemic risk
hits all at once
world’s central banks are in fact powerless to stop systemic risk once
powers that be will do everything they can to maintain the illusion of control
despite the clear fact contagion is spreading
the unthinking masses, things will appear
to be alright right until we’re literally in the eye of the storm
We now see the
same drama unfolding in Europe. It is clear to anyone with a thinking brain
that Greece, Ireland and the like will never
pay their debts off. Moreover, the European Central Bank (ECB) will not be
able to do anything to stop the now accelerating collapse.
consider that while Greece and the ECB proclaimed “all is well” for five
months, the Euro nose-dived from December (when Greece first caught headlines)
until June when the ECB announced a $1 trillion bailout.
trillion bailout kicked off a relief rally from June to early November.
However, at that point it was clear that:
European situation was much, much bigger than just one country
trillion would not be adequate to solve the problem
the Euro has begun to breakdown in a major way. Timing this breakdown will not
be easy. The powers that be will do all they can to intervene and attempt to
stop this from happening. However,
these interventions ultimately do nothing to change the big picture.
The big picture is that the Euro is on the
verge of entering a “systemic risk” period similar to what happened in the US
in Autumn 2008. This period will feature accelerating contagion combined with
panic selling that will push the Euro down to test its June 2010 low and
potentially break it. The long-term Euro chart makes this clear:
This break-down in the Euro will coincide with a rally in
the US Dollar and a drop in stocks and commodities across the board. It this
sounds like 2008 all over again, you’re right, we’ve essentially re-entered
that exact environment.
difference is that after the collapse is finished, investors will then set
their sites on the US Dollar as the next currency to fall. That’s when inflation
will accelerate as the US Dollar collapses, destroying purchasing power while
inflation hedges EXPLODE higher.
the most popular picks (Gold an Silver bullion) will records strong gains.
However, others, (the ones that 99.9% of the investment world are currently
clueless about), will go absolutely parabolic.
Be prepared, because 2011 is looking to be one ROUGH year.
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