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Graham Summers’ Free Weekly Market Forecast (Euro Break Edition)
Now that the
holidays are truly over and Wall Street is starting to return to work, the
first item we need to note is that the Euro’s dead cat-bounce has ended on both
a daily basis:
AND a weekly
basis:
The issues
in Europe are well known enough for me not to need to go into details here. It
is clear at this point that the European union in its current form is finished.
Whether we see weaker members kicked out, some kind of debt default, or the
European union broken up into two or more separate unions, SOME KIND OF
RESOLUTION will happen here within the next few months.
The debt
contagion has now spread from Greece to Spain, Ireland, Portugal, and Italy.
The $1 trillion bailout fund has almost been exhausted, and the first bailout
recipient (Greece), is already asking for an extension on its fund repayments!
Like I said,
the Euro in its current form is finished. Europe can no longer “kick the can”
down the road. SOME KIND of resolution has to happen. And it is likely to
happen before the end of February.
This serves
as a major warning for stocks as the Euro has, in many regards, represented the
“risk trade” since June (the Euro bottomed in June while stocks bottomed in
July). The two assets moved closely together up until August and November when
stocks exploded higher courtesy of the Fed’s “QE lite” and QE 2 program.
Indeed,
stocks seem to generally be oblivious to the mess occurring in the financial
markets. All told Gold, China’s stock market, AND the Baltic Dry index (all of
which have lead stocks over the last two years) have already begun to correct.
I think the
odds are high that this will be the week that stocks finally “get the memo.”
The S&P 500 is extremely overbought and overextended. Investor sentiment is
at bullish extremes. And market leaders are all beginning to correct in a
serious way.
Indeed, I
believe we are in fact on the verge of another round of deflation which will
take prices down across the board as the US Dollar rallies. However, this
period will be short-lived as it will be followed by a US Dollar collapse soon
after.
At that point, The next stage is the paper currency collapse: the stage at
which inflation accelerates as the US Dollar collapses, destroying purchasing
power while inflation hedges EXPLODE higher.
Some, like 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.
Good Investing!
Graham Summers
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Or the art of having it wrong. If something happens, it will be in the direction of more integration, not disintegration.
Even after last time, people still do get this right.
Iam not so sure about this "imminent collapse" thesis. The one thing we have learnt over the past years is that when it comes to "paper problems" , that are at the end of the day under the control of govts. with pretty much infinite latitude, infinite accounting flexibility etc - things go to the brink but never over it.
Same cannot be said for problems involving actual molecules - energy, food etc - there the degrees of freedom are severely limited.
I suppose the correct response to that would be of the Von Mises school:
Or one could question the value of using an ever changing, arbitrary standard unit of accounting and commerce, i.e. the dollar:
http://www.financialsense.com/contributors/antal-fekete/sound-navigation...
As it is true for any kind of expansion... Very informative indeed.
Makes me wonder if "travelers checks" will ever come back into style...remember using those over 20 years ago...
Maybe some travelers checks with Ben Bernanke's picture on it would do the trick?
Okay put me in the clueless 99.9 percentile. This is the second article I have read from Graham Summers on ZH with this cryptic comment. What is he referring to? Anyone?
Think September 2008 - March 2009 but times ten for starters.
Then remove anything that happened from March 2009 - to date and turn the S&P chart upside down and shake it real hard...
Cryptic enough?
Nice, thanks for muddying up the water for me.
Please advise. I am going touring in Europe in late May. Will I be involved in a currency crisis then ? I don't have a clue about the TIME TABLE regarding all this currency devaluation & collapse stuff. Am I allowed to get on an airplane with silver eagles in my pocket ? Could I possibly be stranded in Italy & neither the EURO nor the DOLLAR is accepted ?
May 2011? yes, sure.
And you might as well meet Jesus, come back to Earth to save humankind.
Nope, Jesus is doing Cabo.
That's why I always take a couple of Krugs on a trip overseas.
It is interesting to think about what form the restructuring might take. One possibility is they all go back to individual currencies singly, but that is hard to imagine. Do the EFSM bonds become German bonds? It seems more likely that some countries leave the currency union but the union remains. It is not clear to me that the euro is then weaker. I am short the euro and yen, but I'm more convinced about the yen. They cannot drop Kyoto and save their currency. If Portugal, Ireland and Greece left the euro and the Germans EFSF guaranteed the sovereign debt of Spain, the euro would look pretty good.