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Super Mario’s Big Bluff

Phoenix Capital Research's picture





 

 

 

Swing by www.gainspainscapital.com for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.

The financial world has entered a new state of mania with the announcement by the ECB that it will engage in “unlimited” bond buying to maintain lower interest rates for trouble EU sovereigns.

 

As you no doubt know, our firm’s forecast was that the ECB would not engage in any large-scale bond purchasing programs. We maintain this view today regardless of the ECB’s announcement.

 

The reason?

 

The ECB stated very clearly that new bond purchases would only be made under strict conditions. Those conditions involve:

 

  1. Applying for a bailout from the EFSF
  2. Meeting fiscal budget requirements
  3. Implementing major spending cuts and various other austerity measures

 

If this list sounds rather familiar, it’s the exact formula the ECB has used on Greece with absolutely abysmal results. And now the ECB is going to apply this failed approach to the EU as a whole?

 

Let’s cut through the BS here. The use of the word “conditions” completely negates the word “unlimited.” Saying that you’ll buying “unlimited” bonds as long as EU sovereigns meet certain “conditions” actually means nothing. Greece has received over €200 billion in bailouts under “conditions.” How did that work out?

 

So the ECB is not actually announcing a massive new bond-buying program. Instead it’s just announced that it’s willing to provide more money as long as EU nations hand over their fiscal sovereignty and implement austerity measures.

 

This is nothing new. In fact, this has been the exact same program that the ECB’s had in place ever since the EU Crisis began in 2010. The fact that it has changed the wording around a bit changes nothing from a fundamental standpoint. Indeed, the program the ECB “announced” is, if anything, the last thing Spain or Italy actually wants.

 

Spain already has an economy that is bordering on a Greece-like disaster. And this is before implementing any real austerity measures of note. So the likelihood that Spain will actually go for any of the ECB’s “conditions” is remote. Indeed, Spanish politicians have shown that they want their funding “unconditional.”

 

Spanish PM Rajoy challenges the European central bank and Germany

 

Spain will consider seeking extra aid from Europe on top of a 100 billion Euro rescue of its financial sector but does not see any need for new conditions, Prime Minister Mariano Rajoy said in an interview published in European newspapers.

 

http://en.mercopress.com/2012/09/03/spanish-pm-rajoy-challenges-the-european-central-bank-and-germany

 

That one paragraph says it all: give me more money with no conditions.

 

This is coming from a man who demands €100 billion in bailout funds, threatens to blow up the EU, and then goes to watch a soccer match once he’s got the money.

 

This attitude as it appears to be endemic for Spanish politicians:

 

            Catalonia asks for €5bn bailout from Spain

 

Spain's north-eastern region of Catalonia, which represents around a fifth of the country's economic output, will tap a state liquidity facility for just over €5bn, a spokeswoman for the region's economy head has said.

 

We will not accept political conditions for the aid," she added. Of Spain's 17 regions, Valencia and Murcia have also said they would need recourse to the fund.

 

http://www.telegraph.co.uk/finance/financialcrisis/9503633/Catalonia-asks-for-5bn-bailout-from-Spain.html

 

Again, give “me more money with no conditions.”

 

In closing, the new ECB program will ultimately prove to be Mario Draghi’s big bluff. By presenting an old, failed program as something “new” and “unlimited” in scope, the ECB has actually shown that it’s essentially out of firepower.

 

Indeed, consider the following…

 

The ECB says it will buy EU sovereign bonds if EU nations apply for bailouts from the EFSF. Spain and Italy (the very countries that need bailouts) are meant to supply 30% of the EFSF’s funding.

 

So this new program involves Spain and Italy bailing themselves out, while simultaneously implementing austerity measures so the ECB will buy their sovereign bonds?!?!

 

Oh, and by the way, the EFSF only has €65 billion in funding left. That will definitely be enough to bailout Spain and Italy, seeing as Greece has received over €200 billion in bailouts is still imploding.

 

On that note, we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You  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.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

 


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Mon, 09/10/2012 - 12:26 | Link to Comment Jack Sheet
Jack Sheet's picture

This post is as stale as a pole dancer's G-string.

Mon, 09/10/2012 - 12:25 | Link to Comment The Trade Group
The Trade Group's picture

Tony Robbins comments on the debt:

http://www.youtube.com/watch?v=jboTeS9Okak

 

 

 

Mon, 09/10/2012 - 11:28 | Link to Comment Dareconomics
Dareconomics's picture

Spain needs help. Its financial situation is much worse than what is being reported in the mainstream media:

http://dareconomics.wordpress.com/2012/09/06/actual-spanish-financing-ne...

http://dareconomics.wordpress.com/2012/09/08/actual-spanish-financing-ne...

 

If Phoenix is correct that Spain will refuse a bailout, then the other option on the table is a return to the peseta and a breakup of the Eurozone. According to my research, something will give by the end of the year.

Mon, 09/10/2012 - 22:50 | Link to Comment JeffB
JeffB's picture

"If Phoenix is correct that Spain will refuse a bailout, then the other option on the table is a return to the peseta and a breakup of the Eurozone."

---

It seems to me another option might be to refuse any conditions on additional loans, and just default when forced to.

and return to the peseta when/IF forced to. Perhaps that might require the breakup of the Eurozone if the other countries want to force them out as there is no mechanism for forcing any countries out, I believe.

 

Mon, 09/10/2012 - 11:43 | Link to Comment alp
Mon, 09/10/2012 - 09:23 | Link to Comment AT
AT's picture

If Europe doesn't crash in the next month GS is finished. All his open positions (except maybe 1) are 10-30% underwater. And he just last week gave up on shorting gold!

Mon, 09/10/2012 - 09:01 | Link to Comment alp
alp's picture

This is coming from a man who demands €100 billion in bailout funds, threatens to blow up the EU, and then goes to watch a soccer match once he’s got the money.

Graham has summed it all about the attitude of those EU countries in need of ECB bailout funds. :)

Mon, 09/10/2012 - 08:39 | Link to Comment XtraBullish
XtraBullish's picture

As you no doubt know, our firm’s forecast was that the ECB would not engage in any large-scale bond purchasing programs. We maintain this view today regardless of the ECB’s announcement.

As you no doubt know, my forecast is that Phoenix Capital's forecast will be wrong (AGAIN) regardless of their (spam) commentary. Stay short, Graham, as you have been since 2009.

Mon, 09/10/2012 - 07:59 | Link to Comment boogerbently
boogerbently's picture

SPAM

Mon, 09/10/2012 - 05:58 | Link to Comment falak pema
falak pema's picture

Summers of dire euro winter in free fall. His analysis of Eurozone now down the shute or up the creek; he says it won't work down the line. 

But we all know its can kicking just like the FED. Summers, winter and fall, all CB fiat pumping will one day hit the asymptote wall.

Remember hearing Summers saying that QE-3 was impossible....well, well, well, time will tell!

Remember this ? : 

 

"An Open Letter to the QE Crowd: GIVE UP!


 

Swing by www.gainspainscapital.com for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.

 

So… all of you were clamoring that QE 3 was coming. It was guaranteed.

 

Well guess what. It didn’t. You were wrong. 100% wrong. All we got was the same tired “the Fed stands ready to act” tagline from Bernanke...."

 

 

Mon, 09/10/2012 - 02:43 | Link to Comment waterdude
waterdude's picture

Dude from Virginia back with "pithy" analysis, or atleast aping bloomberg headlines.  2010's news rehashed today!

Mon, 09/10/2012 - 03:00 | Link to Comment Western
Western's picture

why's everyone always hatin on gs, the article is accurate.

Mon, 09/10/2012 - 03:19 | Link to Comment fredquimby
fredquimby's picture

Becasue GS has been incorrectly predicting Greece is imminently/immediately/just-about-to leave the Euro and the Euro is going to collapse tomorrow, for over two years now; probably really only to try and help fear-monger a few new lemming subscribers; but it does get very boring.....which I guess leads to the abuse.....

Mon, 09/10/2012 - 09:35 | Link to Comment Shelby Moore III
Shelby Moore III's picture

And the European markets he has been short over that period have declined tremendously, thus bringing gains to him and his subscribers, notwithstanding the current underwater positions due to the Draghi bounce.

Mon, 09/10/2012 - 07:04 | Link to Comment edt
edt's picture

Problem is there's little way of telling how crazy a pol is going to be. I've tended towards the long theory on the grounds that 1) Euro pols are monstrously inept and commited to ideas they've been banging on about for years - they haven't the imagination to think outside them nor the skill to change direction 2) there's a lot of fat to burn in the modern welfare state and many unjust accruals of capital. People are liable to accept austerity and unemployment out of guilt at having it so good so unmeritoriously for so long 3) Countries like Spain and Greece were one step from peasantry 30 years ago. The EU and latterly the Euro have given them more than a sniff of first world living. 4) The enhancement of their status was a deliberate use of the economic reputation of the Euro core- France and Germany. It was not the PIIGS doing, so they are scared of leaving this umbrella even if it was ill-conceived. They didn't do the conceiving, so they have no idea how to 'unconceive' it- their modern economic identity rests on a conception from the Franco-German core which is unsustainable, but the PIIGS don't know how to carve an identity for themselves.

When you look at the stubborn behaviour of the likes of Mario Rajoy, you can see the problem in personal terms- a neo-Franco Conservative who sees the crisis as a way of taking up the battle with unions, regions and republicans, none of whom are especially relevant to Spain's core problem of overvalued real estate, pumped up by Euro-zone banks.

When is this all going to change? When will sense take over? When it has to, when it has to- but when that is like asking the question when the alchoholic is going to pass out. I don't blame Graham for the timing of this; it's just impossible to know.

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