http://albertpeia.com/2biggestproblemsinfinancialsystemhitin2013.htm
January 13,
2013
‘This week is
options expiration week: the week in which various call and put positions will
expire. Wall Street is notorious for using these weeks to gun the markets this
way and that in order to insure that the greatest number of puts and calls
expire worthless. So expect the market to be even more volatile than usual this
week.
Outside of this, the
investment world is slowly emerging from its Central Bank policy induced stupor
to realize two of our long-standing themes:
1) That
European markets are highly overvalued based on their underlying fundamentals.
2) China
has an inflation problem and cannot print money non-stop to keep its economy on
track.
Regarding #1,
Bloomberg ran an article over the weekend expressing concerns that the European
markets are overvalued. The truth of the matter is that the entire European
banking system is insolvent. There is simply no other way to describe a banking
system that is leveraged at 26 to 1 with net assets at nearly 300% of GDP
(Europe’s GDP is $16 trillion and its banking system is $46 trillion).
However, the
mainstream media can never tell the ugly truth here (doing so would trigger a
panic). So instead we’re going to see concerns voiced that Europe is
“overvalued” and that European economies need to pick up because the ECB is
essentially tapped out.
This is about as
close as we’ll get to the media admitting Europe is bust and out of solutions.
The fact that this story is already showing up in the media should be a warning
that the next round of the EU Crisis is likely around the corner. Both Spain
and Greece have recently admitted their banks are at negative value.
Expect the news to worsen out of Europe in the coming weeks. What happens if
the markets call Mario Draghi’s bluff? We’ll find out this year.
Regarding #2,
roughly 30% of China’s population lives off of $2 per year. Food inflation hits
this country very hard. And the Government is now stuck between a rock (a
slowdown in its economy) and a hard place (higher inflation that results in
mass civil unrest).
As a result of this,
the Government has to focus on managing expectations both inside and
outside of the country. Inside of China this means making public
displays of cracking down on corruption to keep the population calm (many
Chinese area beginning to ask themselves, “why should I go along with a system
in which I’m not getting wealthy but corrupt officials are?” The Government is
also taking measures to control prices (see the ongoing rise in Chinese imports
despite the economic slowdown) in an attempt to keep inflation at bay.
Outside of China, the Government needs
to send signals to the rest of the world that it will not be engaging in
massive stimulus without triggering a capital run. Notice that the language
coming out of the new leadership is carefully crafted: new party leader Xi
Jinping has openly stated that China will not be pursuing “high” growth rates
through stimulus going forward.
The message here is
that “we’ll engage in stimulus, but we won’t be pumping anywhere near the
amount needed to hit double digit growth.” The investment world is totally
convinced China is going to pump $1 trillion or more into its economy. Chinese
officials are denying this. Take note… typically when the investment world
finds out it’s wrong there are serious fireworks.
While everyone else
continues to believe the fairytale story spun by the political class and
mainstream media, our Private Wealth Advisory newsletter subscribers have
already been warned of these issues and are taking action (just as they did in
early 2008 when others were bullish, or in 2010 when the EU crisis first began
to take off).
Private
Wealth Advisory outlined several critical investment strategies, designed to hedge
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This includes out of
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investments on the US debt ceiling talks that allow individual investors to
profit when the stuff hits the fan there, as well as a major slowdown in China.
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