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Graham Summers’ Weekly Market Forecast (Back Into the Fire Edition)
Stocks continue to remain in la-la land. I really cannot find another way to put it. Europe has now gone from a relatively small problem (Greece) to a HUGE problem (Italy).
To put this shift into perspective, Greece is the 11th largest economy in Europe. Worldwide exposure to Greece's debt is roughly $280 billion. In contrast, Italy is the third largest economy in Europe and the third largest bond market in the world. Global exposure to Italy’s debt is north of $800 billion. It’s already taken down one firm (MF Global), others are coming too.
That’s what I mean by a big problem.
It is now clear that Italy would have already posted several failed bond auctions if not for direct intervention from the European Central Bank (ECB). Worse still, despite the interventions, Italian bonds continue to implode with the 10-year now yielding over 6% (Germany’s 10 year yields 1.78%).
The whole thing is quite reminiscent of 2008, when it took the market two weeks to figure out that Lehman’s bankruptcy had catastrophic implications. MF Global has now gone under, Italy is fast losing control of its bond market, and stocks look to have likely topped last week.
I believe we have likely put in a top last week. We’ve already broken back below the 200-DMA on the S&P 500. Once we break below 1,225, we’re back into Crisis mode.
Much of this hinges on the Euro which looks to have bounce up to “kiss” resistance at 138 and is now ready to roll over to 135 in short order.
As goes the Euro, so do stocks. Speaking of which, stocks are expensive based on their near perfect correlation to the Euro as well:
My general view remains as follows: we’ve had a brief final hurrah in the risk-on trade (stocks up, commodities up, Dollar down) due to rumors and hype all of which have proven to be unfounded or simply desperation from those who need stocks higher.
Meanwhile, behind the scenes the financial system continues to break down in a big way. The EFSF deal has proven to be a dud before it even passes, Merkel and Sarkozy have lost all credibility as problem solvers, and Italy lurches ever closer to providing a real systemic disaster.
Again, the issues in Europe are ANYTHING but solved. This is why the credit markets are already anticipating more Greek haircuts as well as ever increasing systemic risk.
If you think I’m over-reacting, consider that the EU is now talking about trying to use various countries’ Gold (Italy and Germany) as collateral for bailout schemes.
Folks, when countries are openly admitting that the only real capital they have is Gold, then they’re admitting that paper money, particularly the debt-based bailouts, are no longer effective at solving the financial system’s problems.
Heck, why do you think China just imported a record amount of Gold? Because they think we’re out of the woods? Weren’t they the ones who were supposed to save Europe?
The reality is that the powers that be (the Federal Reserve and ECB) are fast losing control of the system. Bernanke’s already admitted he hasn’t got a clue how to solve the financial system’s problems. The Bank of England says we’re facing the greatest financial crisis in history. Even the IMF has warned that we’re heading towards a global financial meltdown.
If you’ve not already taken steps for what’s coming, the time to do so is NOW before the real mess begins.
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Good Investing!
Graham Summers
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$250 please
The interesting thing about China importing gold is that the imports show up as imports thus offsetting exports.
The reality however is that gold should not be counted as an import because it is MONEY MONEY MONEY and not goods.
Therefore, China's trade surplus is bigger than that noted.
Anyone acting on Graham Summers posts over the past year will have lost money... Fortunately for him, he just sells doomsday books for a living...
Everyone I read is Bearish, short covering cant be the sole reason this market levitates with no volume - look at all the companies with a P/E in the 100-500 range making new ALL TIME highs last Friday and today!....worst news and market shoots higher. Burliphoney wipes his ass and market shoots higher, largest one month run up in market history and market shoots higher.
I guess one needs to detach the logical side of his brain to trade this.
Your last sentence is a gem and contains the truth to much of what is happening, i.e. no logic.
Folks, when countries are openly admitting that the only real capital they have is Gold, then they’re admitting that paper money, particularly the debt-based bailouts, are no longer effective at solving the financial system’s problems.
Why this isn't sad on the Evening News each night astonishes me.
Wait, I know what it isn't sad. Market away, sheeple!
Oh, it's surely sad. It's just not said.
"Folks, when countries are openly admitting that the only real capital they have is Gold, then they’re admitting that paper money, particularly the debt-based bailouts, are no longer effective at solving the financial system’s problems."
a euphony
There will never be a top on stocks. After the crash, companies will start spending their hoarded cash on armies. Then we'll really see some EPS fireworks.
Uhmmm up another 85 today Graham and no reason with the lack of volume and paradoxical buying on bad news this can't go higher...no one cares about might bes and maybes...everyday you wake up and there is no crash, this market grinds higher on short covering...