Don't Be Fooled, The German Backstop Ends Soon

Phoenix Capital Research's picture

According to French President Nicolas Sarkozy, he and Angela Merkel share an “absolute determination” to defend the Euro. I find that hard to believe as:


§  86% of Germans think the Euro is at risk.

§  71% of Germans are doubtful about the common currency.

§  56% of Germans say the Euro has brought them economic disadvantages.


The European bailouts were always ultimately about Germany. Without German support, you have no bail out and no EU either.


So with that in mind, we need to consider that Angela Merkel’s party was absolutely destroyed in the German March 2011 elections, largely because she had been pro-bailouts and pro-the Euro. She’s not out of the woods yet either.


The next round of German elections comes in September (the 4th, 11th, and 18th). Is Merkel (and her party) really going to commit political suicide to support the Euro? After all, she would literally have to change the German constitution to participate in the creation of Eurobonds (the latest deranged ECB idea). You think the German people will go for that?


Me neither. Especially considering that the German economy is starting to roll over: GDP growth was only 0.1% (0.5% was expected). Both exports and imports fell upwards of 4%. It’s hard to believe the German people will want to continue bailing out Greece and other weaker EU countries when Germany itself is contracting.


However, in the very short-term, the Euro has been rallying for three primary reasons:


1)   Shorts covering (Dealers were heavily short the Euro)

2)   The Fed (QE 2 and most Fed action is aimed at bailing out European banks)

3)   Political influence (hype and hope on Euro-bonds, Swiss pegs, etc)


Short term, the Euro might be the most heavily manipulated investment on the planet today. The dynamic between the US Federal Reserve, European Central Bank, and Swiss National Bank makes this situation nearly untradeable in the short-term.


However, the political/ economic/ monetary backdrop behind this mess remains the same: Germany cannot and will not be able to bail out all of Europe. The short-term moves are nothing more than drama. The EU in its current form has entered the End Game.


Whether we see weaker players kicked out (Greece and Portugal), some kind of larger EU split (North and South), or a complete dissolution (possible but highly unlikely), the EU will be breaking apart within the next year to 18 months.


Howe precisely this plays out remains to be seen. Right now the Euro looks to have broken out of a wedge pattern within a larger upward trading channel. Once we break the lower trendline (black) we’re going DOWN.



Which returns to a theme I’ve been expounding on for months now, that the Great Crisis has now entered its second round: the Sovereign Debt round, in which entire countries and regions will be going bust (rather than just private banks).


We entered this Round in earnest in late July 2011. It isn’t over. The fact that the proposed solutions now involve floating bonds for entities that don’t even really exist (Eurobonds) should tell you how desperate it’s getting.


I hold by my former statements: this is the time to be defensive, moving into cash and non-cyclical sectors. Gold and Silver are a little too hot right now, so I wouldn’t be adding to positions there. The same goes for US Treasuries.


On that note, if you’ve yet to prepare your portfolio for Round Two of the Financial Crisis, you can find actionable investment ideas that will not only protect your portfolio, but help you produce outsized profits in my FREE report, The Financial Crisis “Round Two” Survival Kit.


This report is over 17 pages long and includes detailed analysis of why the First Round of the Financial Crisis happened, why the next round (Round Two) will be even worse than 2008, and which investments can produce triple digit winners when the market crumbles.


This report is 100% FREE. To pick up your copy today simply go to: and click on the OUR FREE REPORTS tab.


Good Investing!


Graham Summers


PS. We also feature two other reports, one outlining how you can purchase Gold at just $350 per ounce and another featuring two investment ideas that will skyrocket as the world’s paper currencies collapse in an Inflationary Armageddon.


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Clowns on Acid's picture

The Sept time frame looks about right. Equity / bonds markets absolutely blow out. Gold / silver / plat rise substantially.

Kids are off to school, US politicans back is session, Oblama unveils his "new" socialist version of deficit reduction policies...



Gunther's picture

Hope you are right but the red/green opposition is pro-bailout. Only the small FDP tries to get profile by opposing eurobonds. A real anti-bailout party is not in the parliament.


Cast Iron Skillet's picture

You write: "Angela Merkel’s party was absolutely destroyed in the German March 2011 elections, largely because she had been pro-bailouts and pro-the Euro" ... I don't think that was the case at all. There were many more issues involved. In Baden-Württemburg, for example, the CDU lost due to their stand on nuclear power (the elections occured just after Fukushima) and due to disenchantment with certain railroad projects.

Also, you need to urderstand that Merkel's party, the CDU, is one of the parties MOST LIKELY to want to exit the Euro. The largest rival party, the SPD, is much more pro-Euro and pro-Eurobonds. In fact, when important CDU members balked at the idea of Eurobonds, the SPD offered to help Merkel obtain a majority for Eurobonds in the Bundestag, if necessary.

If German voters wanted to protest against Euro, I don't think there is even a major party that the protest vote could go to.

So I think you are sort of off-track with your analysis of the German political situation. Sorry.

Fuh Querada's picture

Correct. Graham Summers is full of krapp.

ClaymoreStoor's picture

I wonder if the author has considered the enormous WWII guilt-complex that continues to embody German culture and politics.  Polls can say one thing; it's quite another for people and politicians to follow through.  The fact is that continued German guilt from WWII continues to influence German politics and foreign affairs.  Although I think Germany is better off in the long run without the Euro, I somehow feel that this will never be allowed to happen.  Germany will once again make the sacrifice they see as necessary to keep europe "united."

Cast Iron Skillet's picture

you're right - it's exactly this guilt complex that will (once again) prevent Germany from acting in its own best interest.

The problem with Merkel, and what could cost her the elections, is that she seems to be incapable of decisive action in either direction. She constantly just keeps trying to muddle through.

Dick Darlington's picture

Support for euro in Finland is going down like a rock. One of the presidental candidates demands Finland to get out of eurozone and today the former prime minister Kiviniemi said at least Greece should be kicked out. Also mr Wahlroos, the chairman of the board of Nordea heavily criticised EU and the totalitarian elite in Brussels. He called Sarcozy and Merckel "delusional and out of reality" and said the bail outs of the southern europe+Ireland and the banking cartel was and is a huge mistake.

apberusdisvet's picture

Hmmm.  Is the predicted October crash now a certainty?  If Merkel gets blown away in the september elections,  the message will be clear:  the plug on the Euro ventilator should be pulled.

gerryscat's picture

What the "people" want is irrelevant. The politicians will do what their real masters, the elites, tell them to do. And if that means no reelection then they will be rewarded in other ways.

P Rankmug's picture

the EU will be breaking apart within the next year to 18 months

 Unless you're sentenced to life, 12 to 18 months is not my definition of soon.

BeerGoggles's picture

blah blah blah, free newsletter, I only need 1 muppet a day to sign up to the newsletter and I make a killing  blah blah blah market crash blah

sabra1's picture

all this just to protect german and french banks! everyone else, eat s...!

Franken_Stein's picture


The break out could be a head fake.


CTG_Sweden's picture

It is true that all EU members now are entitled to leave the European Union. But they can not leave the EU instantly at the same moment they decide to do so. There is a grace period for the EU, and during this grace period other EU countries can suck out the country that wants to leave EU as much as they want to.

LawsofPhysics's picture

That oscillation is typical of algorithmic functions coming to a mean.  Fucking brilliant.