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Draghis Bazooka Will Fire Blanks... Just Like Paulson's Did in 2008

Phoenix Capital Research's picture





 

I wanted to post an update to you as you no doubt are worried about the market especially given the speed and strength of this latest rally at a time when we are largely short the markets.

First and foremost, you should know that nothing has changed in Europe. This market move was kicked off by Mario Draghi, Prsident of the European Central Bank, claiming that he has some secret up his sleeve that will save the EU.

Draghi is lying. The EU simply does not have the funds to do anything major at this point. THE EFSF bailout fund has €65 billion in funding left. Spain alone will need €500 billion in the next six months if not sooner. Italy will likely need that much if not more.

The ESM, which is the other bailout mechanism is supposed to be up to €700 billion in size. However, 30% of this €700 billion is supposed to come from Spain and Italy. Does anyone see a problem with that?

Also, Germany has not even ratified the ESM yet. Instead, the German constitutional courts will decide on September 12 whether or not the ESM is constitutional. If they do not, then the EU will implode.

But, for the sake of argument, let’s assume that the German courts vote in favor of the ESM. The issue still remains that Germany will not permit the ESM to get a banking license (we know this as it’s been repeated time and again by German officials) which means the ESM cannot buy banking bonds (which is what Spain and Italy desperately need).

Why would Germany not go for this? Because Germany will be the largest contributor to the ESM. If it decides to give the ESM a banking license, then Germany is putting itself in a position where it would have to potentially backstop EU banking deposits.

The EU’s banking deposits are north of €17 trillion. The banking deposits at the PIIGS alone are over €5 trillion. Germany’s economy is only €3 trillion.

It’s simple math. Germany does not have the firepower to backstop the EU. The country has already committed nearly €1 trillion in backdoor bailouts. As a result of this, its Debt to GDP ratio is closing in on 90%... calling its own solvency into question.

German political leaders are many things. Stupid is not one of them. Instead of Merkel and her team taking the fall for what will ultimately be Germany’s decision NOT to support the EU (how could they? Germany doesn’t have the money and the German people don’t want to support more bailouts), they’ve decided to make the issue a matter of public referendum.

Given that the vast majority of Germans are sick and tired of bailing out Europe, what do you think the likelihood of the German people voting to support the PIIGS are? We already know that most Germans want Greece kicked out of the Euro if it fails to meet its debt repayments. So it’s pretty obvious that if it comes down to it, the German people won’t vote in favor of supporting the EU for much longer.

This leaves the ECB as the sole backstop of the EU. The ECB cannot simply monetize everything under the sun. If it did, the EU bond market would blow up and it’s game over. Moreover, if the ECB did this, Germany would pull out of the Euro (69% of Germans are already worried about inflation). So again, that’s a checkmate position.

My point with all of this, is that we’ve just witnessed Mario Draghi’s “bazooka” moment. Remember back in 2008, when Hank Paulson claimed that it he made a big enough monetary intervention threat that the markets would somehow correct themselves? Well, we know how that turned out (the markets called his bluff and the Crash happened).

Mario Draghi has just done the same. And he’s produced the same sharp short covering rally. But it’s going to end in the same way.

With that in mind,  if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

 

 

 

 

 

 

 

 

 


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Tue, 08/21/2012 - 02:14 | Link to Comment WaEver
WaEver's picture

cuckoo cuckoo   it's 12 o clock  time for the daily depressing graham summers show

Tue, 08/21/2012 - 01:58 | Link to Comment waterdude
waterdude's picture

"the EU will implode" ... Dude's still in 1q 2011.

Mon, 08/20/2012 - 23:28 | Link to Comment disabledvet
disabledvet's picture

the German economy continues as the campaign slogan goes "Forward." So far the bailouts of their economy at the expense of all the outlying economies proceeds apace and unfettered. I fail to see why Germany would stop now per se. Clearly this isn't a political issue...in effect "they are the EU now." the massive amounts of capital that have surged into Switzerland is obviously as terrifying as it is odd...if the entirety of the EU collapsed...then what? I've taken Sweden over Switzerland since day one of this insanity...so far so good. Still....i'm giving the odds of a total blowup of the whole thing as rising...though not quite 50/50 yet. Wall Street is obviously playing both ends of this thing...but resorting back to WW II type possibilities i still think are not in the cards. We shall see...http://www.youtube.com/watch?v=lsrVtz5Q66c

Mon, 08/20/2012 - 23:19 | Link to Comment ghenny
ghenny's picture

Graham you have been dooming and glooming Europe forever.  You have been wrong forever as well.  Draghi is quite capable of pushing down Spanish and Italian interest rates with his current mandate.  He is currently lining up the right combination of carrot and stick along with the right mechanism for firing his Bazooka.  Draghi and Merkel are essentially on the same side despite all the huffing and puffing by the Bundesbank.  When Draghi fires, markets will back off and Europe will have bought enough time to straighten things out - about 2 years.  Go ahead and bet against him.  You will lose your shirt and those of the sheeple you managed to take with you.  Try a little common sense and some real economic analysis for a change.

Tue, 08/21/2012 - 03:13 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Indeed right that « Draghi and Merkel are essentially on the same side ... » as you say

Tho good to have a morning chuckle from yet another Euro-Doomer post from Graham Summers ...

Maybe later Mark Grant, too, can pop 'out of his box' and also give us a repeat of his own vague Euro-Doomer fairytale, along with his usual style quotes from the Wizard of Oz or Alice in Wonderland

ZH's Reggie Middleton was driving the Euro-Doomer bus yesterday ...

Meanwhile, in the UK Telegraph - despite being strongly euro-sceptic - they are confirming that the German ECB Executive Board member, Merkel's own man, is approving of unlimited money-printing to buy GIIPS bonds

Of course there will be more German 'denials' for domestic political use - and to try to keep EURUSD lower for the sake of German exports -

But really the Germans are going to print, like everyone else, to try and keep this game afloat

The Telegraph gets it ... they have actually been covering euro-zone somewhat better than ZeroHedge in recent weeks - Here's the latest from their superb Ambrose Evans-Pritchard:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/948869...

Tue, 08/21/2012 - 08:36 | Link to Comment LowProfile
LowProfile's picture

Bank guy:  If you would indulge me, I would appreciate your thoughts on my wall-o-text here http://www.zerohedge.com/contributed/2012-08-20/draghis-bazooka-will-fir...

Cheers,

Low

Mon, 08/20/2012 - 23:27 | Link to Comment LowProfile
LowProfile's picture

 

Draghi is quite capable of pushing down Spanish and Italian interest rates with his current mandate.  

Mmm...  I wouldn't be so sure about that.

The PIIGS need to get their house in order.  They tried mo' money, mo' money didn't work (crackhoes smoked it all and came back for more), so now it's time to show da hoes who's boss.

He is currently lining up the right combination of carrot and stick

You got that 1/2 right, anyway.

Tue, 08/21/2012 - 03:14 | Link to Comment Ghordius
Ghordius's picture

Bingo! "The PIIGS need to get their house in order". On this, the Finns, the Germans, the Dutch, etc. all agree. And it will take time.

And Draghi did receive "unlimited firepower", but this is not to be used in the manner of a Greenspan put. He is allowed to - note the continental european view - bash speculation, i.e. smooth the waves. This is understood as countering short term violent moves, not gradual rises. Europeans like to plan, and the financial markets are understood as having to fit to this paradigm or being treated as the enemy.

Tue, 08/21/2012 - 05:34 | Link to Comment falak pema
falak pema's picture

central planning a la européenne; not like the FED, tool of the derivative drunk Oligarchs. 

Its stays central planning; but it fights the enemy of world economic stability, the derivative runaway market all tailored for the Oligarchs.

We are in the midst of a crisis of a type of capitalism whose demise may germinate a new type of monetary system; if the Eurozone can keep a firm grip on long term objectives and tame the market to decouple it from current oligarchy play of race to bottom.

Will Pax Americana allow it to change the rules?

Time will tell, as today all central bank plays, help the greenback but do not solve the US's structural imbalance, which is also present in Europe and must be mastered for its own survival. This is the issue of defining a new monetary and economic paradigm in first world.

Who has the strenght of long term vision linked in with a new innovative paradigm that alows runaway current imbalances to be attenuated, all the while allowing the short term abyss to be circumvented? 

Eleventh hour conjecturing as midnight strikes on Big Ben!

And Eurozone's current internal bickering has to stop, and a game plan urgently adopted. 

 

 

Tue, 08/21/2012 - 06:13 | Link to Comment Ghordius
Ghordius's picture

of course it's a form of "central planning", though I think this term has been stretched by overuse. The same way as the derivatives market is a form of central planning by price racketeering, a price cartel led by five banks chaining most of the others by contracts.

Falak beylerbey, you are a poet and you like images: note how central banks all like the image of the greek temple, slender columns joining a roof holding the statics together. the image of the banks joined sheltered by "mama bank" - the image of monetary "central planning". The derivatives cartel makes a tangle.

China, together with the other BRICS, is challenging the status quo. They engage in State Capitalism of the highest sort. The big question is if this monetary and commercial conflict can be really "won" by the complete opposite (that is theory anyway, in the US) - without losing the "social substrate", or "social compact".

The Eurozone's internal bickering is a sign of healthy politics, IMHO. The eurozone cannot set the pace anyway, it has to plan and react. If we really have to adopt more strict political regimes than we might win a battle but lose what we wanted to defend.

Tue, 08/21/2012 - 07:52 | Link to Comment falak pema
falak pema's picture

Before this beylerbey thingie becomes a given, just for giggles, I don't have a drop of Turkish coffee in my veins; just saying. Much as I like Stanbul coffee, food and Turkish coastline.

Your last paragraph evokes in me a certain malaise based on prior knowledge of two constants of Euro scene :

1° The EUro was a botched scheme from inception whereby we, the Euro group, built a political compromise amongst key nation-states (France/Ger-Mitter/Kohl entente) on the issue of common money à la Bundesbank, without having first included a fiscal covergence policy in those formative years (1992-2001). This as you know is monetary heresy. And due diligence was never encouraged in the Euro parliament where the political lines are very sharp and unmanageable (27 nations), as they conflict with the powers and prerogatives of the Commission. We need to strengthen the Parliamentary function in EU and make it more functional. But this in itself is a MAJOR political project over many years!

2° The Merkozy deal in 2009, of every nation doing its own housekeeping; and we forget that the common money banking risk is joint and several; was another heresy as the sovereign bond risk subsequently made clear. Merkozy knew to what extent the whole Euro private banking and government sectors depend on the international bond market, the BIGGEST by far, in the world. As the corporate stock market is relatively small in EU, compared to WS, to raise private corporate capital requirements. This "every nation for itself", looking the other way on global banking risk staring them in the face, made them sitting ducks for the resultant speculation from the Anglos; aka Soros cabal. Dumb to the point of being criminal collusion...

So "healthy politics" is IMO stretching it to the point where the tree hides the forest!

But anyways that water under the bridge now!  

Tue, 08/21/2012 - 08:20 | Link to Comment JOYFUL
JOYFUL's picture

An honorific given, even when tongue in cheek, is a ting to weigh mightily before turning down, mister....but if yur penchant for the mundane outstrips yur heretofore displayed good taste, we can accomodate...

whilst yu yurself might indeed be lackin in Anatolian ancestry, many of us in the west do not...case in point, the Tuatha de Danaan, and their Milesians enemies, of Ireland, ne Iberia,[or the Picts(Pixies!)of Alban, ne the Anatolian hinterlands and the broad steppes of our Scythian founding clans, where we roamed as free men/women, inheriting not just blue\green\grey eyes, but the sacred temple-mortuary raths and barrows, that Tolkien remembered us, and the Sidhe culture of the fairy peeples, with the knowledge of the unseen realms and their inhabitants...which still lingers in our blood today...

if yu truly lack these elements(nothin atall to do with latecomin Turks)mores the pity, budster, but I wouldn't be advertising it! Yur weekend encounter with that passing enchanter seems to have unseated yu, squire, or at least left yu wobbly in the saddle...hopin yu come to yur senses soon!

 

Tue, 08/21/2012 - 08:03 | Link to Comment Ghordius
Ghordius's picture

ok, looks we are in disagreement on 1.

on the monetary side, if the currency war continues you might, IMHO, see why

on the political side I firmly believe in the confederative setup and the primacy of the council over that parliament. in doubt, scrap the EU parliament! let the center be weak and place the burden of hard decisions in the national parliaments and executives. otherwise we just ape the path taken by our American Cousins towards an unitary state.

now you have just made me yearn for Stambul coffee and the Turkish coastline!

Tue, 08/21/2012 - 08:33 | Link to Comment falak pema
falak pema's picture

oh I agree on confederacy, just saying common money means fiscal discipline and delegation of part of national agenda of fiscal cohesion from national to euro level; where the compromises have to be sealed multilaterally.

I agree our national cultures should be preserved. 

Tue, 08/21/2012 - 08:32 | Link to Comment LowProfile
LowProfile's picture

I asked for an intelligent discourse on the structure, nature, purpose and future of the euro, and gentlemen:  You served it up admirably.  Thank you.

Mon, 08/20/2012 - 23:03 | Link to Comment LowProfile
LowProfile's picture

OK, Graham, yadda yadda euro-bash yadda yadda, etc. etc.

Let's see if we can finally get some serious discussion going about the construction of the euro and it's purpose...

Here is what will happen:

The EUR will devalue.  But it won't disappear, or lose utility. 

Ghordius so far has said it best (link to the comment below http://www.zerohedge.com/news/feds-gold-being-audited-us-treasury#commen... )

"it is well known that the bulk of Europe's sovereign gold is also contained deep under downtown Manhattan: we wish them all the best when they attempt to repatriate the physical when they need it, such as the day after the EUR finally collapses".

This is the other way round. First Nixon forbade repatriation on August 1971. Then europe had think through where all this was heading and concocted the EUR as a response to the situation, present and future.

This included expectations of future currency wars and great rounds of "competitive devaluations" in an environment that would make small currencies very, very fragile in view of huge waves of hot, speculative fiat looking for something to break for a quick profit. The CHF is already hiding under the EUR skirt, if this goes on we'll soon see other small currencies in some kind of trouble (the GBP's fate will also be very interesting). No financial pundit is currently ever thinking through (in the way of Bastiat) how this mess since 2008 would have looked like with 17 eu currencies all biting each other...

Ironically, the best way to get rid of the EUR would be the repatriation of the european gold, same as in 1971.

Fat chance. As long as the US Treasury/FED goes the fiat way and the USD is the global reserve currency (the two facts reinforce each other), I don't see how this "EUR collapse" could happen with an eurozone that is a net exporter, an ECB that values it's gold at market value and the European Fiscal Compact that is going to at least try to institutionalize nearly-balanced-budgets in the eurozone's future.

For all near-blind hate against all central banks that some here have, anybody looking seriously at the current situation should realize a few of those facts, that make btw the search for "understanding where the EURUSD is going" quite irrelevant, a mere short-term distraction. By now, we all have some proof that the ECB is really guided by the compromise between 17 national interests (yeah, call them mercantile, if you wish).

Parts of the gold markets are "getting it", eventually we'll talk here about "eurogold vs. usdgold", and more about "central banks FX reserves", etc.

And for all those that are expecting a "marriage of convenience" between the USD and the EUR - or even think this is a "grand plan": please remember East Asia's policies, expectations, demands (including SDRs), past currency manipulations and plans for the future. And how the current global trade flows function.

_-_-_-_

All I can think to add to what Ghordius wrote above (for now) is that the EUR is a supra-national currency, with no single nation in control of the issuance of currency (BIG difference between the ECB and the Fed, although it's clear the Fed is in collusion with the big banks).

Also, it uses the market price of gold to calculate it's reserves, with which it lends against.  This gives it an enormous advantage over both a debt-based and a gold-redeemable currency.

This also has the effect of limiting the ability of any one Eurozone member from issuing unsustainable debt (Greece, Spain, et. al. are running up against this market limit right now).

This has the effect of in the long run, making the EUR the most stable of all transactional currencies in the world.

The USD could do the same, but to try and adopt the EUR model, it would create a price shock in gold (and the USD) that TPTB are clearly trying to avoid.

This IMO will result in the EUR becoming (at least in the West) the transactional currency of choice.  Not a great store of value (unless you buy stable EU nation bonds, depending on the larger environment), but a superior medium of exchange than other currencies (owing to it's wide acceptance and greater stability).

Gold, bitchez.

Oh, and http://screwtapefiles.blogspot.de/2012/08/niceto-know-that-euro-is-in-su...

Cheers,

LowProfile

Tue, 08/21/2012 - 03:33 | Link to Comment Jack Sheet
Jack Sheet's picture

I'm afraid you are wasting your time. Graham doesn't read comments. These are spam posts hawking his newsletter, nothing else.

Tue, 08/21/2012 - 08:37 | Link to Comment falak pema
falak pema's picture

lol, as if anybody cares on what dear Graham feels in the summer breeze. 

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