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The fumbling around for a “solution” to the European debt crisis continued this week. And frankly, we’re entering “Theater of the Absurd” territory!
What does that mean for you? Simple. Bureaucrats and politicians on both sides of the Atlantic are getting increasingly desperate to contain a crisis that is uncontainable — at least until the REAL endgame is reached. That endgame will involve debt defaults, writedowns, bank failures, and market washouts.
So rather than continue to chase every rally fueled by hope and hype for some newfangled solution, it’s time to batten down the hatches and prepare for the inevitable!
What Happens When Policymakers Get
Desperate? Here’s Exhibit A!
So what do I mean when I call the current search for a solution absurd? Here’s Exhibit A …
Earlier this week, some bureaucrat apparently decided he or she had to spike the stock markets higher. So details of a new bailout “plan” were leaked to CNBC mouthpiece Steve Liesman. I put the word plan in quotes because it has to be one of the most convoluted solutions I’ve ever seen cooked up.
According to the plan:
- Money from the European Financial Stability Facility (EFSF) would be used to help “seed” …
- A Special Purpose Vehicle (SPV) that would be backed by …
- The European Investment Bank (EIB) …
- That SPV would buy bad sovereign bonds from banks, who …
- Would buy the SPV’s own bonds, then …
- Use those bonds to get more money from the European Central Bank (ECB).
If that sounds like the messiest, most doomed-to-fail plan you’ve ever heard of, you’re not alone! But just a few hours after the plan was leaked to the media, things got even WEIRDER!
You see, the EIB has historically been a development bank. Its loans have helped fund a medical center in Estonia, promote small business lending in Rwanda, and plant trees in Spain. Yet somehow, markets were led to believe it was going to switch its mission to buying sovereign bonds. That sounded like yet another desperate attempt to stick it to the “shorts” to me.
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| The EIB is staying clear of sovereign toxic waste. |
Sure enough, within hours the bank itself came out and said it had no idea what CNBC was talking about! In fact, it went a step further and said it will play no part whatsoever in any bailout! Read the statement yourself online here if you like.
You can’t make this stuff up folks. Clearly, the left hand in Europe doesn’t know what the right hand is doing!
How to Protect Yourself — and Profit —
in Today’s Volatile Market
So what are the investment implications here?
European politicians are backed into a corner. Their citizens don’t want to pay for more bailouts. They don’t want to be taxed into poverty just so far-away bankers don’t have to bite the bullet for making dumb investment decisions.
The Germans in particular are worried that if they have to write a bunch of big checks to bail out the Greeks, the Irish, and everyone else, their OWN “AAA” grades from the major agencies will get cut. Weiss Ratings, for its part, already rates Germany much lower than the major agencies: C+. That could easily slip if billions and billions of euros in contingent liabilities are added to its balance sheet.
No wonder German Finance Minister Wolfgang Schauble just called the U.S.’s suggestion that the Europeans “lever up” their bailout fund a “stupid idea” that “makes no sense!”
Yet big banker buddies like U.S. Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke continue to insist that the world will come to an end if — horror of horrors — bondholders actually lose money! They want Europe to do a big TARP-like program, giving away the store in order to save their fat-cat friends. They keep repeating the mantra “No more Lehmans” and are willing to sacrifice virtually anything to back that up.
Ultimately, though, I believe a day of reckoning, market collapse, or whatever you want to call it is inevitable. That’s because sovereign governments ALREADY spent all the money they had — and then some — to bail out private banks in Phase I of the credit crisis. Now those very same governments are under siege in Phase II, so they can’t bail each other out! The money’s gone!
Your best bet as an investor? Don’t let hope guide your investment strategy. Deal with the reality in front of you. And in my view, that reality requires a straightforward course of action: Sell down your stock exposure, and ramp up your investments in inverse ETFs, which RISE in value as vulnerable stocks and asset classes fall!
Want to know how? Then click here. You’ll get a much more detailed view of what’s going on, and step-by-step instructions on how to insulate your wealth from this unfolding crisis!
Until next time,
Mike
