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Weren’t We Facing A Systemic Collapse a Few Months Ago... What's Changed Since Then?
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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Aren't there all but one dove on the fed board now? I am hearing about how inflation is low enough to justify another QE, and of course Obama would love that to prop up the corpse one more time for the election. True, the half life means it can't be done too soon because it will have reversed before the election. I DO note that metals are not so strongly correlated with the falling stock market today. Seems to me in the short term, if the dollar does well as Europe gets worse, metals should not do so well, but by June we should have QE rolled out and PMs will do great.
Bury those PMs deep! ObaMao will want them after TSHTF!
"In the United Soviet States of America, ObaMao is King."
They held off so you could sell more of your little fucking bullshit "report".
Asshole.
You're pretty much a dick, aren't you?
Its ok. I have one myself.
I tried doing shots the other night to stop the room spins I got from being so drunk...IT DIDNT WORK!
Confused as to why...(scratch head and laugh)....
I once tried that, crystal on top of booze, from drunkeness to clarity in a flash. you just have to leverage with the next best thing.
I would ask why hasn't the deleveraging occurred yet?
And equities leading the way may be a sign of something other than decoupling, dumb traders, or algos.
I can tell you I am still trying to determine market direction etc... for 2012.
But bonds have a lot of room to fall... trillions of liquidity on the sidelines are waiting to either cover capital losses or flood into equity markets.
Seems like everyone is bearish.... but I hear way too much news how optimistic everyone is as well.
Im in cash for the time being and a little "physical". Will start trading once we get some clarity.
I don't get it. Why do people trade in such dangerous markets? You get better odds in Vegas. We should try to preserve wealth.
Meanwhile idot politicians scramble trying to prop this horseshit up for another day which is going to make the inevitable that much worse. This will result in complete chaos.
No, there won't be any chaos, and yes they can keep "this horseshit" propped up long as they want.
How? By printing enough currency to keep it going ...which they will one way or another.
Japan has done it 20 years now. We're just 3 years into it.
The better question to ask is WHY they want to keep it going.
Simple answer there too. It's the cover story for looting massive wealth from the people. It's their "excuse" for printing endless amounts of currency and debasing the currency to nothing.
"Japan has done it 20 years now. We're just 3 years into it"
+1
It takes a long time to kill a country...especially one that militarily outspends the rest of the world combined.
I think we need to look to China. They hate us and when they crash they'll take us with them.
Never mind Japan. Japs have a solid industrial-export base and massive savings. US has nil + nil. Next US warship thru the Straits will be sunk. Oil to >$200, dollar dumped worldwide. Endgame.
Yeah, but Japan's exports are all radioactive. The camel jockeys might sink 1 carrier, but the other two nearby will obliterate Iran's infrastructure.
Let's send Comrade Barry thru first in an Italian Cruise ship.
+55
Not only is he cranky and old but he is a fucking moron as well.
Agreed. The one thing I always hang my hat on...is that there is NO WAY OUT of this mess other than default (aka coercive writedowns) or to attempt to inflate the losses away.
Have to imagine they print trillions before things collapse...
There are now more dollars than there are grains of sand in all of the beaches of the planet.
"An order of magnitude estimate would be anywhere from 1020 to 1024 grains of sand" on the beaches. ( http://www.tufts.edu/as/physics/courses/physics5/estim_97.html )
Even with the lowest estimate of sand, we'd need several years of Zimbabwe-type hyperinflation to match them with dollars.
thank you for your appeal to reality. that is the currency of the realm in these parts. and while we are at it: http://danericselliottwaves.blogspot.com/2012/01/elliott-wave-update-20-...
(he's started thinking out loud. differentiate that from talking to oneself, if you dare.)