Weren’t We Facing A Systemic Collapse a Few Months Ago... What's Changed Since Then?

Phoenix Capital Research's picture

Investors are getting strangely bullish.

 

If you’ll recall, the entire European banking system nearly imploded just 8 weeks ago. Things were so dire that we even had a coordinated Central Bank intervention among other measures to try and prop things up over there.

 

The Powers That Be have since launched the Long-Term Refinancing Operation or LTRO: essentially a program through which European banks can borrow from the ECB at just 1% for up to a year. The whole thing is essentially just another liquidity handout and it’s telling that those firms which do borrow from the LTRO are parking almost all the borrowed cash at the ECB soon after.

 

And while the LTRO has been beneficial in terms of some liquidity concerns, it’s done nothing to address Europe’s solvency issues. Case in point, European banks in general are leveraged at 26 to 1. At that level even a 4% drop in asset prices wipes out all equity.

 

In this environment, the ability to borrow more money doesn’t accomplish anything from a balance sheet perspective. It’s simply a matter of common sense: you cannot solve a debt problem with more debt.

 

But since the ECB cannot directly monetize EU bonds without Germany pulling out of the EU, and since the German rules Euro-bonds as illegal, the LTRO is about the best the ECB can do in these circumstances.

 

What’s truly concerning however, is the fact that investors have piled into risk assets based on the LTRO (and misguided hopes of more QE) as though none of these issues exist.

 

Folks, just a few months ago, no less than the IMF, Bank of England, and others warned that we were facing a global meltdown and the worst financial crisis in history. Do you really think a few liquidity programs have solved all of this?

 

Moreover, if a huge round of QE or other stimulus money were coming, shouldn’t commodities be exploding higher just as they did before QE 2 in 2010?

 

Gold is still in a downward channel well under resistance:

 

Agricultural commodities, which were the first asset class to predict QE 2 are struggling too.

 

 

These charts don’t scream, “more easing is coming” to me. Which makes the extreme bullishness of investors all the more disconcerting. Any time a trade grows too lopsided, there’s the opportunity for a sharp reversal. Right now, investors are piling into risk assets in anticipation of more QE from the Fed. But none of the fundamental issues that nearly took Europe down have been resolved. And the Fed has made it clear that it’s finding QE less and less “attractive” since as far back as May 2011.

 

The reality is that the EU in its current form is finished. There is simply no way we can muddle through the debt deleveraging that will take place. And when the smoke clears the EU in its current form will be broken and we will have passed through a Crisis far worse than 2008.

 

Many people see their portfolios go up in smoke with this. But you don’t have to be one of them. In fact, I’ve laid out a series of steps every investor can take to prepare for the coming European Collapse. 

 

These steps are laid out in five Special Reports that can all be downloaded for FREE at http://www.gainspainscapital.com under the Our Free Special Reports tab.

 

To pick up your copies, swing by http://www.gainspainscapital.com today!

 

Good Investing!

 

Graham Summers

 

 

 

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arg's picture

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DeadFred's picture

The can was kicked successfully down the road, who can deny that? Question how far down the road, question if there is more road remaining but for today the bulls rule. I like to think I'm as good a bear as most ZHers but there is essential no news that says the turnaround will be TOMORROW. Maybe after the FOMC meeting things will change but on the nanosecond level all is peachy-keen. I won't become a buy-and-hold type guy but there are pennies out there in front of that steam roller so let's get sweeping! Someone come up with some ideas, even guesses, about when this turns around and what the cause is and I'm all ears. Iran is just theater, Greece doesn't default until March, what else is there? Maybe next week Bernanke will say really, really I promise there won't be any QE, but would you believe him?

Buck Johnson's picture

They did massive currency swaps with the US that is what stopped the bleeding those weeks ago, but it won't last.  Because the problem is still there and these bonds (what financial institution would take a 70% cut on their investment even though they have insurance that could pay out 100%) that are insolvent.  What isn't being said and commented truthfully is the fact that many of these bondholders of Greek debt won't take this deal regardless of what is coming out of the EU, why should they.  I would force a credit event then get my 100% in insurance.  And if the US (who's banks and insurance companies insured the bonds) don't pony up the cash someway to pay the insurance and/or buy the bonds for themselves, I would let it burn and see who has more to lose.

tazmatic's picture

Isn't RJA an ETN?, in other words it is just paper trading mods with no actual assets to back it up.

roy10's picture

LTRO has chnaged. ECB pumped liquidity to the market. The liquidity crisis is over.

boiltherich's picture

If you’ll recall, the entire European banking system nearly imploded just 8 weeks ago.

 

That is sooo 2011.  We are past that, treaties can be changed without plebicite now, the EU/ECB simply dictates constitutional changes (Hungary) and appoints Prime Ministers, (Italy, Greece, Spain).  And the ECB can print print print print print and flat deny it is monetization or a bailout, if they don't do it the IMF will, and nobody has the balls to be the first to chuck it all (Finland).  Hell, the eurozone may even be getting a NEW member this year (Scotland). 

LookingWithAmazement's picture

"Weren’t We Facing A Systemic Collapse a Few Months Ago... What's Changed Since Then?"

Mr. Draghi started the printing presses. Since then all fears have gone; banks are saved, countries get support, stocks rise and gold + silver went down. No panic anymore. In this piramid-Ponzi-scheme, freshly printed money is the one and only thing that keeps it going on. Draghi understands it as no one else. So be prepared for that 10 trillion LTRO-tsunami and huge optimism afterwards. No collapse. Stocks will skyrocket, loans be cheap and a new wave, hype or boom will start. Bye bye "crisis".

SeattleBruce's picture

But the debt saturation, unemployment, and loss of real wealth by the middle class to inflation crises will remain, and ramp up.

LookingWithAmazement's picture

Employment will rise and is rising. US economy grows, no matter what the doomers say. No crisis.

walküre's picture

show me the jobs

show me the growth

instead investors are buying Bunds and taking a beating (negative interest rates).

MGA_1's picture

A bad prediction ?

Fuh Querada's picture

The charts show fuck all at the most.

ShankyS's picture

How to prepare for the coming mess? 

 

Gold

Silver

Ammo

Guns

Seeds

Food

lakecity55's picture

In a world of zombies, Lead is King.

Boilermaker's picture

What changed?  They doubled down again.

They'll keep this shit going for a LONG LONG TIME. 

Seriously...what?  You think they just going to stop ram rodding the markets higher?  WHY? WHY WOULD THEY?  It isn't even difficult and the general public approves of it.  What's for them to fear?

Please, this is nothing more than a damn video game now and Ben has full control of the joystick.

Lord Koos's picture

"...even a 4% drop in asset prices wipes out all equity."

This is why the markets must continue to be pumped up.

Zero Govt's picture

Yes the delusional domain of Big Govt, Big Banks and Big Hedgies (lookin at you Warren)

...the 'throw funny money around to zero effect' non-productive part of economics that so befuddles and be-twixes the starry eyed rabbits (journos and economists) 

Meanwhile in Realityville, the real economy and the really productive people say "fuck this sham/shambles" and pack up

Blowjob Ben is blowing bubbles but he'll never admit his actions have no bearing on anything in the real economy ...Warren will find out (the hard way) Govt cannot revive the real economy or create wealth (short Berkshire and the Over-Optimist of Omaha)

Boilermaker's picture

Well, time to enjoy the confidence inspiring rally galore into the final 15 minutes.  Just for shits and giggles.  Go for that HUNDO!!!!

SPX gonna go greeeeeeen....Oh my god, it's running down my leg I'm so fucking excited.

Zero Govt's picture

...and Silver Up 5%

is it a Bull trap?

NEOSERF's picture

...it’s done nothing to address Europe’s solvency issues. Case in point, European banks in general are leveraged at 26 to 1. At that level even a 4% drop in asset prices wipes out all equity.

And there is your answer....the ECB and Fed will NEVER, read my lips EVER allow that type of asset price drop and if it does happen, you won't hear about until years later when someone gets and award for quietly injecting money that saved the world...this is the game now...

Zero Govt's picture

"this is the game now"

you mean they're trapped in their own fake/fraudulent game, US Govt, WS Banks and Fed painted themselves into a corner of pumped assets and cooked books

the US Govt and Blowjob Ben blows bubbles into mortgages but there are no real (businesses/consumers) people the other side of the economic equation to make their fake prices real/realised

US property has entered a walking dead zombie world running in parallel to the real world, they cannot join it without realising reality, price discovery

'Check Mate' will arrive one day as it always does to 'The Establishment'

zerotohero's picture

I'm doing a George Costanzas - the complete opposite of everyone else.

CH1's picture

Honestly, I think it's a mass psychology thing... though I don't know what kind.

Perhaps they are proving to themselves that things are back to normal? Or something like that?

csmith's picture

These charts don’t scream, “more easing is coming” to me.

 

No, but they do scream: "Just enough easing is coming to prevent a collapse", which is all central banks are good at and the markets care about.

Ronstradamus's picture

I see it as just enough easing to get ObaMarxist reelected.

 

No easing, no reelection

 

Some easing, possible reelection

 

Too much easing, inflation, high gas prices, no reelection

Zero Govt's picture

ObaCommie is electoral toast

100% Guaranteed

CH1's picture

I sure hope you're right, ZG, but I'm not confident of that.

lakecity55's picture

Obamao killed the pipeline. Financial Terrorism. He is a clear and present danger to the National Security of the US.

How do we  get rid of this meddlesome Priest?

Chief KnocAHoma's picture

I think doom fatigue has set in. Over the last few weeks my business activity has picked up and most buyers are saying the same. "I cann't sit on the sidelines forever."

Don't get me wrong, the activity is no where near where it was, but the strongest players are coming back into the market sensing a bottom.

Sure hope they are right.

 

SeattleBruce's picture

"Sure hope they are right."

May be happening at micro levels, but the world is still awash in fiat debt, and that is fundamental and getting worse daily.

Jena's picture

I find myself listening to Leonard Cohen a lot these days.  He has a new album out, Old Ideas.  This is "Darkness":

http://soundcloud.com/leonardcohen/leonard-cohen-darkness

Great use of background singers and guitar, as always and a really excellent organ solo.

 

I caught the darkness

it was drinking from your cup

I caught the darkness

drinking from your cup

I said 'Is this contagious?'

You said 'Just drink it up'

 

I've got no future

I know my days are few

The present's not that pleasant

Just a lot of things to do

I thought the past would last me

But the darkness got that too

 

I shoulda seen it coming

It was right behind your eyes

But you were young and it was summer

I just had to take a dive

Winning you was easy

But darkness was the prize

 

I don't smoke no cigarette

I don't drink no alcohol

I ain't had much lovin' yet 

But that's always been your call

And I don't miss it baby

I've got no taste for anything at all

 

I used to love the rainbow

And I used to love the view

Another early morning

And I pretended it was new

But I caught the darkness, baby 

And I got it worse than you

 

I caught the darkness

It was drinking from your cup 

I caught the darkness

Drinking from your cup

I said 'is this contagious?'

You said 'Just drink it up'

 

General Debility's picture

Must get that. Looove Leonard:)

ucsbcanuck's picture

Esp his version of Hallelujah

Jena's picture

Me too, and so right for the times!

Edit: His voice is like a 30 yr old Scotch...

brettd's picture

Who can afford 30 year old scotch?

falak pema's picture

shaken but not stirred I presume.

...this is no technological breakdown, this is the road to hell...awesome premonition.

DoChenRollingBearing's picture

+ 1 to all Leonard Cohen fans above.  Thanks for letting us know that he has a new one out, Jena!  I would bet that captures our zeitgeist very well, but without that pretentious word...

Hannibal's picture

Psychopathic bags of shit always seems to float to the top.

dmger14's picture

That is a bad a$$ 1 oz. coin right there!  I'm going to pick me up some soon.

Freegolder's picture

Mr Summers would prefer the world to ..what, ignore its problems, just wish them away?

He's a fool with something to sell, who doesn't understand that Europe is a big step ahead of the US/UK/Japan in that it is taking its medicine right now, rather than QEing it down the road for a year or two.

Wake up Mr Summers, and maybe change the record too. Why the hell ZH permit his crap on here is beyond me.

cranky-old-geezer's picture

 

 

Why the hell ZH permit his crap on here is beyond me.

Because they're paying contributors perhaps?

I can't think of any other reason ZH allows some really crappy contributors to keep posting their crap here.  It's gotta be money.

General Debility's picture

He has some good analysis also. don't throw baby away with bathwater!

Sudden Debt's picture

Don't ever throw babies!
It's illegal.... At least it is in my country...

Rahm's picture

Coordinated Currency Collapse. 

SheepDog-One's picture

SURE a few months ago we were facing a total global melt down and all that....but we got us in a fresh shipment of pure Bolivian Hopium, and some unicorn farts to boot! WAHOO party ON!