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Mr. Market: Get It Through Your Head, The PSI DOESN’T Matter

Phoenix Capital Research's picture




 

 

I don’t know how many times I have to say this, but I’m saying it again.

 

Greece and the Euro are finished. The math is impossible. There is no way on earth that this Second Bailout accomplishes anything worthy of note. The idea that this country will somehow return to economic growth within two years, based on an additional €130billion in bailouts is outright insane.

 

Remember, Greece already received €110 billion in bailout funds in 2010… and still posted GDP growth of -4.5% in 2010 and -6.8% in 2011. Greece’s economy is only €227 billion, so the country failed to post any economic growth and in fact saw its economic collapse accelerate after receiving a bailout equal to 57% of its GDP!!!

 

And somehow another 130€ billion is going to get this country back to economic growth in two years’ time? Greece hasn’t experienced any growth in five years.

 

Again, this entire deal is just stupid. And all it’s done is alert Spain and Italy to the fact that handing over fiscal sovereignty and implementing austerity measures in exchange for bailouts is a waste of time.

 

As I wrote to clients several weeks ago:

 

Meanwhile, on the other side of EU equation, Spain and Italy must be watching what’s happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures.

 

Both countries have already had a small sampling of the austerity measure medicine. Spain recently implemented a meager 19€ billion in austerity measures while Italy passed 30€ billion in austerity measures in 2011… hardly a drop out of their respective 1.06€ trillion and 1.5€ trillion economies.

 

Yet, even these tiny moves resulted in protests and riots. One can only imagine what Spanish and Italian politicians are thinking as they witness the widespread civil unrest, country-wide strikes, and economic depression that have occurred in Greece as a result of that country’s full commitment to the EU’s austerity measure demands.

 

Spain’s official Debt to GDP is only 64%, but its private sector debt is at an astounding 227% of GDP. And the Spanish banking system is leveraged at 19 to 1 (worse than Greece).

 

Moreover, the country is already experiencing an economic Crisis with an unemployment rate of 20+% and an economy that has been contracting since mid-2011 (in fact Spain’s GDP just actually went negative in the first quarter of 2012)…

 

So… we must consider that it is highly likely the option of simply defaulting is being discussed at the highest levels of the Spanish and Italian government. Should either country decide that austerity measures don’t work and it’s simply easier to opt for a default, then we are heading into a Crisis that will make 2008 look like a joke.

 

Well, Spain just woke up and smelled the coffee:

 

                Spain's sovereign thunderclap and the end of Merkel's Europe

 

As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

 

Taking what he called a "sovereign decision", he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

 

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.

 

With condign symbolism, Mr Rajoy dropped his bombshell in Brussels after the EU summit, without first notifying the commission or fellow EU leaders. Indeed, he seemed to relish the fact that he was tearing up the rule book and disavowing the whole EU machinery of budgetary control.

 

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100015432/spains-sovereign-thunderclap-and-the-end-of-merkels-europe/

 

So… if you still think the Greek PSI matters in any way, you’re not thinking past the next 24 hours. Spain has just told the EU to “shove it.” Having seen Greece enter a depression and get pushed around by Germany and France for two years, Spain’s just told the EU that it’s not going that route.

 

And if Greece, whose economy is roughly the size of Massachusetts, nearly took down the European banking system… what do you think will happen when Spain decides to it doesn’t want to play ball and would rather just default.

 

Hint: It will be Lehman times ten.

 

If you’ve yet to take steps to prepare for this, I can show you how: my Surviving a Crisis Four Times Worse Than 2008 report is chock full of information on how to not only survive but thrive during the months to come.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four 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 my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.

 

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

 

 

 

 

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Thu, 03/08/2012 - 17:06 | 2237229 carbonmutant
carbonmutant's picture

This isn't about Greece. It's about the Banks.

This bailout is designed to keep EU banks from imploding and to give the facade of credibility to EU investments... as long as you're willing to take a 75% hit...

Expecting Greece to follow through after the bailout, without reneging, is a fools errand.

Thu, 03/08/2012 - 16:59 | 2237206 HarryM
HarryM's picture

It's almost like Europe is trying to handling the Greek debt problem the way a department store in a bad neighborhood handles theft - by treating it as a cost of doing business.

Thu, 03/08/2012 - 16:42 | 2237139 rsnoble
rsnoble's picture

Oh great, now we get to sit here and bitch about Spain for the next 2 fucking years?

Don't get me wrong I pretty much agree with what was said it's just that most of us are pretty much Linus in the pumpkin patch waiting for something really big to break and it never does. Of course Greece isn't officially over and we always have Iran to look forward to, lol!

Thu, 03/08/2012 - 13:26 | 2236472 Confundido
Confundido's picture

A lot of people are comparing this swap with that of Argentina....Guys, when Argentina did the swap THEY FIRST DEVALUE THE PESO!!!! 1 USD WAS 1 PESO BEFORE...1 USD WAS ABOVE 4 PESOS AFTER!!!

HOW THE F... CAN PEOPLE NOT SEE THIS HUUUUGE DIFFERENCE??? THE GREEKS, AS LONG AS THEY STAY IN THE EURO, ARE F..D!!!

Thu, 03/08/2012 - 14:26 | 2236674 Buck Johnson
Buck Johnson's picture

There is no way for Greece to pay this stuff back, no way  the numbers don't add up.  Spain and Italy know that if the default they will still be able borrow and do the things they need to do because of how big they are. 

Thu, 03/08/2012 - 13:40 | 2236523 LowProfile
LowProfile's picture

Or, the Greeks could issue the drachma and let it trade side by side the euro and...  Hmm...  What's that other thing they keep around for "tradition"...  Hmmmmmmmm...

Thu, 03/08/2012 - 13:17 | 2236443 AN0NYM0US
AN0NYM0US's picture

"Remember, Greece already received €110 billion in bailout funds in 2010"

 

I think you meant to say the Euro banks already received €110 billion in bailout funds in 2010"

Thu, 03/08/2012 - 14:59 | 2236811 dontgoforit
dontgoforit's picture

Yeah - Corzine bought $1.6b worth of it.....

Thu, 03/08/2012 - 14:59 | 2236810 dontgoforit
dontgoforit's picture

Yeah - Corzine bought $1.6b worth of it.....

 

pls excuse the inadvertent double post - distractions

Thu, 03/08/2012 - 12:54 | 2236359 Clowns on Acid
Clowns on Acid's picture

Dosen't matter...buy, buy, buy...the new IPad is out ! Start eating....

Thu, 03/08/2012 - 15:24 | 2236887 SokPOTUS
SokPOTUS's picture

Pass the ketchup.  Goes good with retinas.

Thu, 03/08/2012 - 13:22 | 2236465 B-rock
B-rock's picture

Bullshit article...  There will be NO sovereign defaults because there is no sovereignty.  This exact senario was pumped by permabears with Greece as the trigger.  All it has triggered is the realization of the EU's plan to enslave ALL of Europe and there is no escaping it. Bullshit Spain won't roll over.  It won't all fall apart at once... It has been falling apart for 30 years -- exactly as planned.

Thu, 03/08/2012 - 17:12 | 2237254 Silver Pullet
Silver Pullet's picture

Yeah, likely to see a Goldman agent placed in there any time now.

Thu, 03/08/2012 - 12:53 | 2236354 vmromk
vmromk's picture

Remind us of your Proprietary Crash Indicator ?

Thu, 03/08/2012 - 12:49 | 2236336 johnjkiii
johnjkiii's picture

This is just one more attempt to spoil the fun we are all having in the market. We are 100% certain we can bring this to a close with no risk. So why are you people all fighting. Don't worry, be happy. We'll let you know when to sell and there will be plenty of willing buyers standing ready to take you out of your positions.Don't call us, we'll call you.

S/Bennie

Thu, 03/08/2012 - 12:47 | 2236326 Zero Govt
Zero Govt's picture

"..Lehmans times ten.."

I still haven't had the bill for Lehmans so not too worried. Benny at the Fed has picked up the tab to date

Thu, 03/08/2012 - 13:59 | 2236598 NEOSERF
NEOSERF's picture

Lehman just exited bankruptcy yesterday so all is well... the only thing politicians know how to handle this situation is to let time heal all wounds (or at least let them get out the door in time).  They WILL continue to throw money at any country that comes begging and hope the US recovery comes sooner rather than later to their own country...that's it in a nutshell for the strategy and there is NO amount of money that is offlimits because they aren't playing with their own...it is Germany who will have to pay for this bar tab

Thu, 03/08/2012 - 13:59 | 2236597 NEOSERF
NEOSERF's picture

Lehman just exited bankruptcy yesterday so all is well... the only thing politicians know how to handle this situation is to let time heal all wounds (or at least let them get out the door in time).  They WILL continue to throw money at any country that comes begging and hope the US recovery comes sooner rather than later to their own country...that's it in a nutshell for the strategy and there is NO amount of money that is offlimits because they aren't playing with their own...it is Germany who will have to pay for this bar tab

Thu, 03/08/2012 - 12:38 | 2236288 Eally Ucked
Eally Ucked's picture

I think that this article was posted on wrong site. Probably 99.9% of readers have the same opinion about future for Greece. If they do PSI, ok, everybody will move to Portugal, and after that ..........

Western world got only PRINTED money, nothing else and it cannot continue for ever.

 

Thu, 03/08/2012 - 13:38 | 2236507 LowProfile
LowProfile's picture

Mr. Summers and the rest are MAKING A BIG MISTAKE.  THE EURO WILL GET CREAMED BUT WILL NOT GO TO ZERO, THE REASON WHY IS IN THIS ARTICLE:

http://victorthecleaner.wordpress.com/2012/02/22/currency-wars-why-the-u...

The USD (currently) has nothing to prevent it from going to (so close that it doesn't matter) zero, however...

Do NOT follow this link or you will be banned from the site!