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Just a few short days after I urged you to consider reviewing our latest blockbuster special report — Winners and Losers in the Great Global Banking Crisis of 2012-2013 — a massive Spanish financial institution called Bankia shocked the market.
Its confession? It needed a whopping 19 billion euros in bailout money … above and beyond the 4.5 billion euros it already received! That makes Bankia the single-biggest bank collapse in Spanish history!
Meanwhile, shares of some of the largest Italian banks are collapsing virtually nonstop. Leading bank Intesa Sanpaolo just slumped to within a whisker of a 15-year low, while shares of UniCredit dropped to an almost 24-year low!
If you haven’t checked out this report, I urge you to do so now. I say that because the collapse in the European banking system is NOT just a problem for European bank shareholders or European depositors. It’s a massive problem for the global capital markets, our multinational companies, the U.S. economy, and more!
Europe HAS to Be on Your Radar Screen …
Because It’s Imploding!
I’ve been warning about the magnitude and severity of the European sovereign debt and banking crisis for several months now. And all the latest market action confirms that it’s deepening by the day.
Take a look at this chart of the euro currency! You can see the euro just plunged to around 1.24 against the dollar, its lowest since July 2010!
Or how about the cost of borrowing in troubled PIIGS countries? Have you seen what the 10-year Spanish note yield did this week? Look at this chart below and you can see it just hit 6.6 percent — its highest level since November before the European Central Bank’s LTRO program temporarily bought a period of calm:
Then there’s the latest economic news across the pond. Italian unemployment is closing in on double digits, while consumer confidence just sank to the lowest level in more than 15 years. Greek banks are suffering mass withdrawals that conjure up images of 1930s-style runs — with 23 billion euros yanked in just the last nine months. And Spanish retail sales just plunged a stunning 9.8 percent in April, the most in any month ever!
Pain Spreading Around the Globe, Too!
Here’s What I Recommend …
There’s increasing evidence that Europe’s problems are spreading from around the globe, too. A benchmark Chinese index just showed manufacturing activity shrinking for the tenth time in eleven months, while bank lending is likely going to miss government targets by $200 billion or more.
Meanwhile, India’s currency just hit the lowest level against the dollar ever due to concerns about growth and deficits there. Brazilian activity also looks like it contracted in the first quarter of this year.
As for the U.S., Wall Street has been clinging to this fanciful notion that we’ll remain an island of prosperity in a sea of despair. But business equipment orders just plunged sharply … building permits fell … services sector activity sank to the lowest level since December … and consumer confidence plunged to its lowest since January.
On top of that, the “vigorous housing market recovery” story that Wall Street has been peddling collided head on with reality this week. Pending home sales plunged 5.5 percent in April from a downwardly revised March reading. Not only was that far below expectations for an unchanged reading, it was also the single-biggest monthly decline in a year!
Fortunately, none of this should be a surprise to you. I have been laying out clear, concise steps you can take — in fact, should have taken ALREADY — to avoid this unfolding crisis. To reiterate, take profits off the table, reduce your stock exposure, and add downside hedges.
If you’ve taken those actions, you’re in fine shape. If you haven’t, please do so without delay. Because this crisis isn’t getting better. It’s getting worse. By the day.
Until next time,
Mike
Be careful mike because the Euro is ready to rally
Much higher. Head and shoulders bottom has formed. Gold and silver ready to rocket higher also. Dont be caught short folks.
Not so fast Mr. Massey,
I have the EUR/USD going to 1.10 before we see a bounce. Fibonacci re-tracements have not played out yet. If you buy now you will get burned very badly.
I agree with massey. I think there will be a short term correction before the next leg down to 1.18. It should be short lived and just a correction though in the continuous decline towards parity.
Data and key asset prices show DEFLATION taking hold again and is signaling global recession. Based upon multiple examples it is reasonable to assume that when the next round of major policy actions arrives they will mark temporary bottoms in asset markets–the question as usual is “what” and “how much” will they do?. I’ve observed that many politicians have poor understanding of debt markets and think they can just “order” their central bankers to “control” them. Time and again the lesson is relearned by a new crop of politicians that market forces are more powerful than they are.
Never let a crisis go to waste:
Spain wants euro zone fiscal authority
(not the first time we’re hearing about this–the marketing/propaganda grows louder)
…the European Union should now act to ease the country’s liquidity concerns.
In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or though a direct intervention of the European Central Bank on the bond market.
They have also said the euro zone should quickly move towards a fiscal union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer.
http://www.cnbc.com/id/47657176
Some good traders I follow lay out arguments from technical analysis how there is now a risk of a powerful rally as soon as Monday; however, the charts offer an alternate scenario IMO where we go down to 1240-1250 first. 1277 was one of those “magic numbers” technically and more than one person I know had it pinned more than a day in advance of the markets short term turn there. I think the potential for trading losses on both sides of the trade is currently getting worse, especially if your not able to respond at the speed of light (ie like a news scanning HFT computer) or if your time horizon is too short–you’re direction and targets might be proven true but that’s little consolation if you end up with contracts expiring out of the money. So I’ve dialed back the leverage and the risk and am back to using ETFs again to bet on market direction and volatility.
Notionally central bankers are fueling up their metaphorical bombers and are making preparations to drop new policy bombs on financial markets. If their track record holds they will first launch the “psyops” through press releases, leaked information, and rumors (the market equivalent of leaflet drops). However, like in 2008-2009 central bankers and finance ministers must find ways to motivate politicians to act–and more so in the Eurozone where treaty changes will probably be required. A “Lehman moment” such as a Greece exit may be used as the crisis to pressure (scare) Euro politicians to act–threatening collapse and tanks in the street unless they pass sign some new legislation or treaty in 24-48 hours…(some call these threats by bankers financial terrorism).
Europe Union is gonna collapse sooner or later followed by a World economic collapse