Spain’s ten-year bond yield has broken back above 6%. To see Spain’s sovereign bond yields rising like this after the ECB announced it would essentially provide “unlimited” buying as support is simply stunning. And it indicates in plain terms that the ECB’s program was in fact a dud.
So… the Fed has engaged in record intervention in the market and economy. Despite this, the US “recovery” has in fact been a total dud: we’re officially back in a recession. And inflation is hitting lift off. This means the US, like China and Europe, is no longer an engine for global growth. Combined these three regions account for 55% of global GDP.
Meanwhile, pretty much all of Europe is in recession now, including Germany. True, the ESM bailout fund has been ratified… but the question remains who actually has funds to support it (Spain and Italy are meant to supply 30% of its funding… and they’re the ones who will be requesting a bailout!).
Imagine if the world found out that China’s growth and recovery post 2008 were largely based on fraudulent data and garbage development projects fueled by easy money and rampant corruption on the part of Chinese officials?
In simple terms this tells us that inflation is hitting “lift off” in the US at the very same time that we are entering a recession that could be on par with that of 2008. And with corn and soybean prices at or near record highs, we could be on the verge of a stagflationary disaster combined with a food crisis at the very same time.
So what will QE 3 bring? The short answer is: nothing pretty. Gas and food prices were already high before the Fed announced QE 3. They will be going much higher in the future (Oil is currently falling based on Saudi Arabia working with the US Government to suppress prices).
So, the Fed has failed to improve the economy… but it has unleashed inflation. This is called STAGFLATION folks. And the fact the Fed thinks the answer to it is printing more money tells us point blank: things are going to be getting a lot worse in the coming months.
These are the issues to consider going forward. Our view is that it is quite possible the Fed has played its hand too strongly and thereby damaged its future efforts to maintain market stability via intervention. Given that stocks were already decoupled from the underlying economic realities, this has made the market highly vulnerable to a sharp correction.
These are the issues to consider going forward. Our view is that it is quite possible the Fed has played its hand too strongly and thereby damaged its future efforts to maintain market stability via intervention. Given that stocks were already decoupled from the underlying economic realities, this has made the market highly vulnerable to a sharp correction.
As I’ve outlined in earlier articles, Spain will be the straw that breaks the EU’s back. The country’s private Debt to GDP is above 300%. Spanish banks are loaded with toxic debts courtesy of a housing bubble that makes the US’s look like a small bump in comparison. And the Spanish government is bankrupt as well.
Today as was the case a month ago, everything ultimately hinges on Germany. Political intrigues aside, Germany is just about out of money. And Merkel has to decide… save Germany or save the EU. Only one of these options is even possible at this point (save Germany) as the EU is beyond saving.
I gain nothing from pretending that I’m right when I’m not. And while I hate being wrong, I’m not going to ignore this fact and try to simply move on as though none of this has happened.
The reality is that we’re now facing a Crisis that will make 2008 look like a picnic. That Crisis will come when sovereign nations begin defaulting. The most likely candidate is Spain who refuses to ask for a bailout because it doesn’t want anyone looking too closely at its books because the entire Spanish baking system is insolvent beyond belief.
