This page has been archived and commenting is disabled.
Graham Summers’ Weekly Market Forecast (the Truth About Europe Edition)
Given the ridiculous number of rumors (and ridiculousness of some of the rumors) related to the US and EU debt talks that are circling the financial community, I thought it best that we confront the realities these two economies face.
Regarding Europe, we still don’t have any details regarding the Greek bailout, nor do we have any real sense of how the mega-bailout fund will really work in terms of solving any of the EU’s problems.
However, the fact remains that everything related to EU bailouts hinges on Germany. Germany is the most solvent member of the EU. And without its backing, NO EU bailout scheme will work in any way.
With that in mind, we need to consider that the majority of Germans now want out of the Euro. As I have noted in previous articles, politics is the name of the game in the EU, so the next round of German elections in September could dampen Germany’s interest in backstopping more bailouts (current Chancellor Angela Merkel’s party took a serious beating in the March elections already).
A second element that needs to be focused on is Germany’s economy. Any threat to the German economy could quickly hinder the debt talks/ bailouts in the EU for the following reason:
1) Germany is the largest, strongest, most solvent, member of the EU, so if it’s in trouble, the less solvent members will be in major trouble.
2) A weak German economy will fuel the political fires for those Germans who see little benefit in remaining in the EU (subsequently the heat will turn up on those politicians pushing for continued bailouts).
In simple terms, if the German economy breaks down, then the EU and the Euro are in big trouble. With that in mind, Germany has recently seen three economic releases that show the “recovery” is slowing (the IFO Business Climate, Manufacturing and Services, and the ZEW Economic Sentiment).
If any of the negative issues mentioned above become worse, the EU experiment would fast approach its end. This would result in the Euro taking a hit, which would push the US Dollar higher.
On that note, the Euro broke out of the triangle pattern I mentioned a few weeks ago to the downside. It’s now rallying to retest the lower trendline for this pattern (fitting the classic, break-down, test, then REAL move pattern I’ve been telling readers about for years).
The ultimate target for the triangle patterns breakdown is 136 or so. So unless the Euro stays above 44, we’re going there relatively quickly. Given that Italy has just joined Austria in cancelling a bond auction, I’d say this downside target is on its way.
However, the bigger picture here is the 125-level which has been a line of massive importance for the Euro since its creation:
As the above monthly chart of the Euro reveals, 125 has served both as important resistance and important support over the last 20 years. The Euro just broke below this level during the 2010 Crisis. The next time it breaks below this line we’ll be in the midst of the final End Game for the Euro experiment.
On that note, if you’ve not taken steps to prepare for the coming Crisis, you can download my FREE report devoted to showing in painstaking detail how to protect yourself and your portfolio from the coming ROUND TWO of the Financial Crisis (round one wiped out $11 TRILLION in wealth).
I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own, which to avoid, and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, go to http://www.gainspainscapital.com and click on FREE REPORTS.
Good Investing!
Graham Summers
PS. We also offer a FREE Special Report on the inflation situation in the US. This other FREE Special Report, The Inflationary Disaster explains not only why inflation is here now, why the Fed is powerless to stop it, and three investments that absolutely EXPLODE as a result of this.
All in all its 14 pages contain a literal treasure trove of information on how to take steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up your copy today, go to http://www.gainspainscapital.com and click on FREE REPORTS.
- advertisements -
The US foreign policy needs a chaotic and unstable Europe and a stronger Euro (paradox). Strong support for Europe banks over the last 2 years!
There is economic and geopolitical support helping the Euro survive and bankrupt countries may leave or run. The remaining will be strong coalition of Euro buddies.
The competitive rate for the US dollar should be lower. The world needs an American dollar to compete near 1.5 Euro and 5.2 Yuan
the germans won`t leave the EURO before end of 2012.By then ,they be one of the first ,having secured their collateral, and sending their debts originated in EUROS down the ditch. Everything fine with the new DEUTSCHMARK and old debts payed out of the pocket....
Since Graham flogs his stuff, so I will flog mine! Gmail me anyone at my name above , and promise you will behave, for a link to my (non-commercial) blog. Lots of fun stuff there! Including a new xtranormal silver video w/ robots.
Anannoth! I am no expert on Germany, but I think you are right. They're "cookin' with gas on the left front burner" now, but there are many ways the wheels could fall off even of the best run major economy in the world.
Usually it IS best to cut your losses early. Why is that so hard? Same problem here, and in China too it looks like...
If Germany exits the Euro, it will be a double edge sword. The Mark will soar in value, killing their huge export market...
germany will own europe when the dust settles. the dream comes true.
The debt problems of the PIIGS will only get worse as the time passes, and the German economy can't continue growing at 3% forever(economy is cyclical), it's all crash soon, the hour-glass is near empty
ATM the German public is complaicent because the economy is doing good and unemployment is at a record low, but just wait when this shifts 1-2% and all bets are off
Germany should cut it's losses now, instead of getting itself of the hook for PIIGS debt, when it's economy won't be doing that great Germanys solvency will be called into question