If You’re Not Scared, You’re Not Paying Attention

Phoenix Capital Research's picture

Forget the
details and the specifics… here’s the latest news you need to know about.


Europe is
bankrupt and the EU will not exist in its current form within 12 months. The
ECB tried to “bailout our way to success” strategy on some of the more minor
players (Greece), but is now finding that there isn’t actually enough money to
bail out the larger players (Spain and Italy).


So, barring
a leveraged buyout of Italy by Germany and China, the EU will be breaking up
and the Euro collapsing within the next 12 months. How this will happen remains
to be seen (the EU splits into two sections? Is done away with altogether?
Etc). But the facts remain that the EU has reached the end game for bailouts
(you cannot bail out entire countries).


The last
straw of hope that the bulls are clinging is China’s recent decision to
actively buy EU member states’ sovereign debt. Those of us who recall China’s
decision to buy Morgan Stanley in 2008 can’t help but wonder if the country has
never heard of “due diligence” or if it simply doesn’t care about losing money.


Speaking of
China, the People’s Republic is finding out that the Republic made $540 billion
worth of loans to the people that:


1)   Have
not been accounted for

2)   Are
properly garbage and won’t be paid back


We all know
how this scheme ends (see subprime collapse in US). However, given that China
pretty much makes up its economic data, it’s pretty safe to assume that the bad
loan situation there is even worse than Moody’s believes. So look for a “2008
type” bust in China in the coming months.


And then of
course there’s the US: the current least horrendous disaster winner by default
(literally in Europe’s case and metaphorically in China’s case). Congress
continues to play “debt talk” phone tag with President Obama.


However, to
say this is a debate ignores the fact that there isn’t actually two sides to
this discussion. Both Congress and the White House are debt-crazed groups who
believe throwing good money after bad = recovery. So regardless of whether the
debt ceiling is raised or budget talks reach an agreement, the US is broke and
will continue to be until we default and restructure our debt obligations.


In simple
terms, what I’m trying to say is that we are about to witness another “2008”
only on a sovereign scale. The EU will be first, but China, Japan, and even the
US will be defaulting in the future. The implications these actions have for
asset classes will be HUGE as all assets move relative to sovereign bonds which
used to be considered the primary low risk asset class in the world.


So expect another
bigger Crisis that will feature huge waves of volatility, market crashes, debt
defaults, civil unrest, food shortages, bank holidays and the like.


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note, if you’ve yet to prepare for these issues, you can download my FREE
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