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Europe is at the heart of the current credit crisis. Developments in Italy, Greece, and the rest of the PIIGS countries are driving the action in virtually every market around the world — from stocks to bonds to currencies.
So the four-day trip I just took to Germany couldn’t have been better timed!
I had the privilege of sharing my views on the global economy and global markets before a couple hundred people from the Munich area and around Germany last Friday. And over the weekend, I spent quite a bit of time talking about the latest European developments with colleagues and average citizens.
What did I learn? What kind of boots-on-the-ground intelligence can I share? Let’s get to it …
Bailouts Wildly Unpopular in the
Country That Has to Finance Them!
Forget the empty promises of politicians, or the happy talk coming out of all these European meetings and pow-wows you hear about. The events since the latest, greatest bailout summit in October prove — beyond a shadow of a doubt — that my warnings were right. There simply is NOT enough money to go around to bail out anyone and everyone in Europe!
That’s especially true for Italy. You have to understand that the country has a HUGE amount of debt outstanding — more than $2.7 trillion. That makes it the third-largest sovereign debt market on the planet behind the U.S. and Japan! Greece. Portugal. Ireland. They’re chump change compared to Italy.
And over the last several days, the dam broke in the Italian bond market! Investors dumped Italian bonds like mad, driving their price sharply lower and the yield on the benchmark 10-year note all the way to 7.47 percent! That’s well above the previous highs set a few months ago. And it’s proof positive that both the ECB’s bond-buying program and the leveraging plan for the European Financial Stability Fund are dismal failures!
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| The hardworking Germans are angry over the bailouts. |
Meanwhile, my interactions in Germany convinced me that many Germans don’t like the bailouts their politicians are pursuing any more than you’d expect. They don’t want to spend hundreds of billions of euros bailing out rich bankers and profligate countries in the euro zone, and they’re unhappy with the euro currency itself.
They don’t think the U.S. is in any better shape, either! They can’t believe that U.S. policymakers are trying to give them financial advice and harangue them into bailing out anyone and everyone when the U.S. can’t even tackle its OWN debt and deficit problems.
As you know, the clock is ticking down to the November 23 deadline for the so-called “Super Committee” to recommend huge new measures to cut the deficit. But our Congressmen and women remain hopelessly deadlocked. Democrats are unwilling to slash entitlement programs like Medicare without tax hikes, while Republicans are unwilling to consider any deal that includes such revenue-raising measures.
That virtually guarantees the Super Committee will be a super-disaster. Heck, Congress is a month into the fiscal 2012 budget year and it hasn’t managed to pass even one of the 12 annual REGULAR appropriations bills that fund the government! What a joke!
Urgent Warnings Coming from the Bond
Markets! Stocks Set to Tank?
I’m a bond guy at heart. I closely follow both the domestic and foreign debt markets because they’re often “smarter” than the stock market. In other words, a collapse in risky debt securities often serves as a leading indicator for equities. And right now, the message from the bond market is unmistakable: We’re in BIG trouble!
The “bonus babies” on Wall Street don’t want to hear it. They know they only have two months left in the year, so they’re trying to prop up the market so they can get fatter bonus checks. That’s why stocks rose recently despite the collapse in riskier bonds.
But that game is just about up, as far as I’m concerned. I believe stocks are set to tank again, especially if the Super Committee goes down in flames as I expect.
So please, don’t just sit there and let your wealth evaporate. Take profits off the table in stocks. Then for your more aggressive funds, consider going on the offense — buying select investments that RISE in value when stocks FALL.
Until next time,
Mike
{ 18 comments… read them below or add one }
One currency with bonds at 25% (Greece), 11% (Portugal) and 1,7% (Germany). That’s not sustainable. Next year Italy needs about 300 Billion Euro to serve maturing bonds. In Spain nearly every 4th person is without a job.
We will have no sustainable growth and no recovery in Europe as long as we have the Euro.
Markus Trauernicht
Berlin
In the U.S. the problems are not just about debt. The debt is a consequence of poor planning and most importantly poor policy. The policy settings favour the banks and the risk takers. In America “We the people” has become “We the banks”. Even the democrats are selling the countries heritage down the river in a race to get re-elected rather than a race to fix up the years of poor policy direction that has favored a casino mentality to the detriment of the poor mug in the street. What sort of social dislocation are we headed for when we are being dumped on by our own representatives.
Mike, Mike, Mike…you crack me up, little buddy…First, the populous opinion of 200 people of a Socialist country means nothing to a captialist. You’re basing financial advice to your client’s based on this??…right on..
Now all of a sudden you’re a ‘bond guy”??…..here’s a formula for you, Bond-Guru.
Mike larson + Pimco ( El-Erian) = Bagholders (Did you happen to see Fitch’s analysis of Pimco’s parent company??…..that’s right..PIMCO has a parent company they need to suck up to…just wrote off 4 BILLION in losses…nice…
Get ready, folks…in the next few months QE is gonna hit the ECB like a freight train….so sad….guess where all that “money” is gonna go??…
No..not to their free colleges or infrastructure…it’s gonna need a very, very liquid place to leverage…..
Guess where the most liquid markets currently are??….that’s right…the good ole USA…..
I’ll go on and on and on later…
I respect everyone has their opinion, but Im looking forward to the next leg down in the stock markets..coming very soon…before Xmas! QE will not hit Europe – Germany will see to that. The jig is up for all the QE, bailouts, dodgy deals, con tricks, loose words,lies, etc. The bond market demands to see tough action concerning the sovereign debt levels, not to mention the banks who have taken a back stage, but still have many unanswered questions in this ressessional environment. What is all that austerity and bank writeoffs going to do? Yes, in sinple terms, take money out of the economy.How can there be any growth in this environment which debt is deleveraging? Do you work for Benanke? Are you part of the con-tricks/PR campaign? I dont know who can invest long in stocks at the moment with all the bombs waiting to explode, based on the assumption that more debt will be issued, especially when food/energy prices are maxed out. Good luck with your assumptions. I’ll just stick with my view – at least 3 years of stock market drops or at best sideways movement, after it has fallen to 7000 (at minimum).
Frances, what you have just explained is the debt ponzi scheme. You are either behind the curve or just thinking that whats happened before can just continue. The bailouts/ QE have stacked trillions of debt dollars on to government books and given rise to a social movement camping outside Wall Street. Because of their actions, government are struggling to raise money at reasonable levels. Do you really think the authorities can push any more stimulus QE nonsense through??? The world will survive with a few less banks. Argentina is still around. Life continues after default, no matter how much fearmongering the athorities try to fear us with! THE JIG IS UP.
Sometimes a non-expert has a better idea than an expert because of his distance from the subject. I can’t tell you how many times I’ve heard of an impending “deadline”. Every single time one of these “deadlines” arrives, all the Powers do is deliver a non-event and carefully craft their words so it sounds positive, and the markets are off to the races again! No matter what happens on November 23, the authorities will say it was great news and the markets will continue as they’ve been (nothing really happened after Greece defaulted because it was “great news”, nothing much happened after the G20 meeting even though nothing was accomplished, etc. etc.). As for the Italian bond problem, it looks like a “mysterious buyer” has emerged and all is well again. You see, nothing big will really happen anytime soon.
I agree that the markets appear to be geared for one direction, but a big change is on the horizon, before Xmas.All the dodgy deals have done is stack more problems into the melting pot ready to explode. Probably 23rd Novemeber may be about the right time. Consider:
1/ Greece needs the latest bailout or they are bankrupt. They will try to get the money at any cost. It may be th last bailout before the defaults start
2/ ERCI is forecasting a recession – they have called the last five recessions correctly
3/ China’s exports are slowing
4/ Italy/Slovakia have crossed the 7% bond rate last week.
5/ Unemployment in Europe/US is far too high and not coming down anytime soon
6/ Commodity/Food prices are ridiculously high
7/ Banks around the world are losing money or on the verge of bankruptcy.
8/ QE programs have come and gone – trillions spent – no progress
9/ Government debt around the world is far too high,especially after sponsoring the bailouts for the banks.
10/ Leaders heads are starting to roll.
11/ Technical charts are calling a top, volume is poor.
12/ Housing markets are collapsing. This was the last bubble which supported the economies/banks. The banks are heavily exposed and in deep trouble.
All the previous dodgy deals involved stacking up more debt or rolling over debt to future generations. What has that acheived – a social movement to say enough is enough. The rich will not take money from our children/grandchildrens future to pay bonuses they dont deserve.
I will make the call – 11,000 DOW by Xmas, falling to 7,000 by June 2012.
Expect mass withdrawals from the banks and the stock markets after Xmas. This is what the Benanke and co are affraid of. Social engineering towards boycotting the people/institutions that have got us into this mess – including the governments too, who are only puppets for the rich/bankers.
There are many clues, but for me, people camping outside wall street was the social trigger point for me to go short!
When history is written – the words ‘financial, debt & ponzi scheme, will be somewhere in the lines.
I must say, the authorities and done well to ‘extend and pretend’ for so long. Probably for the best, it gave me time to move my cash out of the banks, pay off my mortgage and invest a little cash short!
The fix is in SUCKERS! It’s a rigged game get over it! The international banking cartel is taking over the game; removing it from the hands of incompetent politicians.
New Greek and Italian leaders are hand picked by the bankers; the new ECB president supports easy monetary policy and money printing. ECB has already been buying Italian bonds.
Federal Reserve and ECB asset buying will continue; the market may notice some of it…some will go unnoticed because they often use proxies (in the US we call them primary dealers) to make sure that there is a bid for every single bond auction. We ALWAYS do this in the US…its a new thing in EU.
michael. You call 11,000 by X-Mas a “call”…..just 45 days from now???.jeez, young fella, that’s practically right in the middle of range where the market has been the last 4-6 months….Great pick..right in the middle of a range..gutzy..
Read past columns of Mike and Larry E…go back 90 plus days….i’ve been calling for a 12,888 by end of year..have said may timees….No bear market until the DXY goes above 84.
You just don’t understand the tea leaves….
The only thing besides the aforementioned after X-Mas i expect to see is the mass withdawal of your money into my account…
Man..you really, rally don’t “get” what yer up against..
Over bullish sentiment…extactly the time to sell. The DOW will never get that high. Italian 10 year bonds will be 10% by that time. Everybody is talking about more stimulus, but the authorities are not delivering and wont act until they they political cover. They wont deliver until the DOW is collapsing again. Then it will be too late. Fear will rule over greed and, like in 1929, 1973,1987, 2000, 2008, expect massive losses quickly. Time will tell and I welcome your opinion. I will be back to see where we are Xmas and to comment. Best wishes.
I read the headlines, but dont let myself get confused with all the news/propaganda…everything is in the charts and the historial indicators… we have not reached bottom yet. You will know when that time comes… I remember in 2008, in the UK, TV channels had the current FSTE in the corner of the screen on the news full time- a sense of panic-a short term bottom. This only happened when the FTSE went below 4000. Sentiment is bullish again after a two year bear rally which is coming to an end. I dont expect DOW 7000 to hold. A good example is the Japan stock market:1989 40k; 2011 8.5k; 2012 6k?
THE SAD TRUTH…………………… is most governements of the world have but 1 way to get out of their soveirgn debt its through quantitive easing , they just have to devalue their way out of this mess its a sad truth lets face it theres not enough money in the world to bail out portugal, italy, ireland, greece, spain, u.k. ,u.s.a. france, japan…………. and would defaulting be so bad lets face it germany defaulted so did brazil decades ago and look where they are today……….
QE leads to more QE leads to hyperflation which is in fact DEFLATION of money. The rich/bankers people wont allow this to happen – never! Thats why they have the FED RESERVE SYTEM to protect their money. Afterall, it is the rich who will suffer the most. Who cares if it costs 1 million dollars for a loaf of bread? The rich will care, for sure. The poor man will grow veggies in the garden and make his own bread.The system will loose its hold on the people. He will have the strength to succeed. The FED system allowed booms and busts, as it plays into their hands (that they are needed) but take it from me the only thing they will do now is play confidence tricks. The dollar is going to explode to the upside very soon. Take the dollars biggest customer – CHINA – are they cashing in their dollars for gold or buying (real things) land/companies with their US dollars? I don’t think so. Its all rigged, but there are subtle clues that its just the age old cycle now turning into depression for 10 years or so.
There is a way out of this and that is to prosecute individuals and banks for irregularities and fraud. To reject the protection of massive derivitives trades shoved onto the public purse that are deliberately set up to deceive. If the law doesn’t do this we then have violence, anarchary, the turning of our society into the kind of terrorism that we would like to see stamped out worldwide using more peaceful means. Gentlemen we will have a revolt.
Frances: ok, so when do you see the DXY at 84?
I didnt know if i should mention this but a friend of mine came in the other day he was withdrawing some funds from one of his accounts he told me he was investing in gold and lead………. gold makes sense i told him but i didnt understand buying lead ……… hmmm …. then he told me GBBA which stymied me more , so I asked him what company is that it , and he told me gold, bullets,body armor…………. and all i could say was oh!
Gary Paul…..the DXY will have breached 84 by May 2012…6 months…..easy smeasy…no double doubt about it…
…the way “things” look now….strong possibility could even be 90 by May 2012….high?…94
Bank on it…
Then again, you’ll be hearing all about it from Martin and his Boy Blunder brcause the markets will correspondly be dropping but their reasoning will be laughable…
http://www.cnbc.com/id/45344815
heh, heh, heh…..I’m anxious to read the Boy Blunder’s article tomorrow….man..have I got some data points for him….
He’s already piping up in his newsletters about armageddon, …man..Europe is getting wiped off the face of the earth…….just like he said 1,000 times before!!!!……