Let’s turn back the clock two years.
In the spring of 2012, the entire EU financial system came close to collapsing. Few investors understand the severity of what happened during that period. After all, the financial media primarily focused on stories about the bailouts working and the ECB’s solutions to the crisis.
In June 2012, Spain requested a €100 billion bailout. At that time, most investors believed this to just another bailout. It was not. In the build up to this mess, multiple counties implemented capital controls limiting cash transactions, ATM withdrawals and the like. There was even talk of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.
The whole point of creating the EU was to allow for greater access to markets through open borders and greater flow of capital through a monetary union. The fact that the EU was ready to suspend all of this is proof positive that it was on the verge of breaking apart. Without open borders and open capital flows, the EU, in principle, ceases to be.
What held this whole mess together?
The European Central Bank President, Mario Draghi, commented that he was willing to do “whatever it takes” to keep the Euro in one piece.
Notice that Draghi didn’t actually do anything. He didn’t somehow render all of the insolvent EU banks solvent. He didn’t somehow delever the system to make it financially stable. He didn’t even force Governments to get their fiscal houses in order (all the talk of austerity was total fictitious; spending increased across the board throughout this period).
So the only thing that changed was a shift in investor confidence based on a Central Banker issuing a strongly worded verbal intervention. This was the sole cause for:
1) The massive stock market rally in EU markets.
2) The large drop in EU sovereign bond yields.
3) The change in confidence pertaining to the EU as an investment.
Here we are now, two years later, and the ECB has failed to create the sustainable recovery that it promised. Because of this, in June of 2014, Mario Draghi implemented Negative Interest rate Policies or NIRP and hinted at launching a QE program.
Systemically, Europe bought the rumor and is now selling the fact. Note that European Financials actually peaked in June 2014 and have since taken out their trendline dating back to the 2012 bottom.
This goes for Spain’s stock market, France’s stock market, the German Dax, etc. ACROSS THE BOARD, European markets peaked in June 2014 and have since been in decline.
Many of them have taken out their trendlines dating back to Draghi’s promise to do “whatever it takes.” The markets may very well put that promise to the test in the coming months. Nothing has been fixed in Europe.
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html [9].
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Best Regards
Phoenix Capital Research