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Sorry Folks, Europe Is Not Fine… Not Even Close
The financial world seems to have adopted the idea that things will somehow work themselves out in Europe. I don’t know if it’s because people don’t like to think about negative things or if someone sent out a memo to everyone that math doesn’t exist or count in Europe, but somehow investors seem to have decided that as long as we think positive thoughts everything will be fine.
The reality is that every day, Europe is approaching a debt implosion.
First off, European sovereigns need to roll over 740 billion Euros’ worth of debt this year. The brunt of this is going to fall on the ECB which has become the de facto bond market for Europe: the ECB was intervening on an almost daily basis during the second half of 2011… and things still nearly cratered.
Indeed, with the prospect of default and 50%+ haircuts now on the table, private bondholders (hedge funds in particular) are going to be much less willing to pony up the cash for EU sovereign debt. So this means the ECB will be stepping up to the table a lot more.
The problem with this is that Germany, (the de facto sovereign backstop for the EU) is not going to tolerate rampant monetization. Thus far, Germany has been willing to permit the ECB to implicitly monetize various EU sovereigns’ bonds rather than face the damage that a series of sovereign defaults would cause to German banks.
However, at some point, the market will force the issue of whether or not the ECB is going to be monetizing everything or not. Germany, having already seen the ultimate outcome of monetization (Weimar) has already made it clear that it will not tolerate this.
Which means that at some point, push will come to shove and either the defaults come fast and furious as the ECB steps back, or the ECB monetizes everything and Germany walks.
Whichever option occurs, the European financial system as we know it will collapse.
Mind you, we’re only considering the sovereign debt issue here. Outside of this, European banks are facing their own Crisis.
To whit, within the next 11 months…
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Irish banks need to roll over 25% of their outstanding debt.
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Spanish banks need to roll over 20%+ of their outstanding debt.
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Italian banks need to roll over 15%+ of their outstanding debt.
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French banks need to roll over 15% of their outstanding debt.
Rolling over debt isn’t a problem under healthy market circumstances… but when you’re posting Lehman-like leverage levels (EU banks in general are leveraged at 26 to 1)… and sitting atop hundreds of billions of Euros’ worth of EU sovereign debt (much of which has declined dramatically in value), convincing investors to lend you money isn’t easy.
Indeed, European banks don’t even trust each other at this point: interbank liquidity has all but dried up. What are the odds they’ll convince outside investors to load up on their debt? Will the ECB be monetizing bank debt too?
In simple terms, the metaphoric “bill” is coming due for European sovereigns and banks this year. The world continues to believe that somehow money will magically fall from the sky and solve this situation, but the reality is that the ECB is the only thing standing between Europe and complete collapse. And every day that the ECB expands its balance sheet buying worthless sovereign bonds, it comes that much closer to blowing itself up.
Do not believe the consensus or the hype: Europe is not fine, not even close. And those investors who are investing based on the idea that it is are just like those who bought in late 2007/ early 2008.
If you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
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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Blogs are the new "the End is Near" breadboard
What, collapse again??!!
Oh, you mean it didn't collapse after any of the last 50 times that you said that it would?
Repent. The end is near! Get a job why don't ya. Nobody's manufacturing Jack Shit around here. I'm going to make something and someone is going to buy it. End of World Products here I come.
Graham, the Report Salesman. :/
Come now. Every time it looks like it may come to an end, it keeps going. Even the Germans kept their mouth shut about this latest QE adventure by the ECB. No: they will print. And so will we. And if we go toward deflation, they'll print some more until the system implodes from inflation. The FED can monetize until the cows come home. All they have to do is get the US government to spend, and at $.40/dollar of deficit spending, that part of the equation of economic MADD is complete.
People with power who are power hungry never give it up. And they'll never agree to 'austerity' as it won't get them reelected. So booms and busts will be the plague of humanity, as will our despotic leaders.
Graham: Getting a little tired of the unbridled self-serving use Zero to advertise my newsletter game.
The piper will be paid. The currency can be land, resources, flesh and blood ...... but not that worthless paper.
http://thedailyclimb.wordpress.com/
Jesus Christ Graham I am fucking shocked you are still here! Go pick up horse dung on Rosarito Beach!
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Wow, thanks for the revelation.
"At some point, the market will force........."
I stopped reading there, what fucking market?
You mean the hft's, corruption, bribery, crooked banker's, slick politician's, un-central bank's will force a market correction?
There fixed it for you Graham. Feel free to add to my list of the shit bag's, it is a long and distinguished list.
There is no market, no rule of law for all 100%, no trust and no sound money in this centrally planned economic test tube.
Yup - Using "The Market" in singular form, pretending there is only ever one market, is retarded!
One might also argue whether markets even matter in a world where OTC-"securites", that per definition never trade in a normal market, are valued at 11 times the world GDP - compared to the public exchanges, which are valued at about 1 time GDP.
The European "solution" is of course to ignore all that, tax the public more and have the central banks backstop OTC, thus converting anyone who can originate a derivative to "a cental bank affiliate" - someone who may use the central banks as a conduit to print real money.
This is going to be a very very nasty year for the economy of the planet.
ITALY protest here - truckers close down Naples Highways
http://gma.yahoo.com/photos/italy-s-truck-taxi-drivers-go-on-strike-1327...
"I don’t know if it’s because people don’t like to think about negative things or if someone sent out a memo to everyone that math doesn’t exist or count in Europe, but somehow investors seem to have decided that as long as we think positive thoughts everything will be fine."
Funny that - all the Europeans I've ever known thought they were soooo much better than North Americans when it came to math. Turns out they suck at it!
how's the past month been treating you? market did not treat the rational bears too well
Even dumb people can hit 21 in a blackjack game from time to time.
And even a blind squirrel can find a nut sometimes.
I read a report claiming that 50% of all blind squirrels can find both their nuts with a proven 100% success rate!
Ever heard of printing. STFU!!