‘This is going to be a very special
holiday season. The reason? It’s the last hurrah before things get very very
ugly.
Just off the cuff, you need to
know that:
1) China, the EU, and the US
(comprising over 50% of Global GDP) are in recession already. The EU has
already announced this. Look for the formal announcements concerning the US and
China to hit the airwaves next year.
2) Some data points
concerning these nations indicate that this recession will be on par with that
of 2007-2008.
A rising tide raises all ships.
Similarly, a sinking tide lowers everything. Bear this in mind as a global
economic contraction will have severe implications for everything.
Beyond the global economy, we now face
sovereign and banking crises in Europe.
Regarding the sovereign crisis, the whole
issue boils down to where the money will come from. The ECB has pumped the
system full of liquidity to help sovereigns meet their funding needs, but
unless real capital shows up (not piling just more cheaper debt onto
of old debt).
The ECB cannot make capital appear. And
the various bailout funds (the EFSF and ESM) all need Spain and Italy, neither
of which have any money to spare, to contribute 30% of their funding. So
they’re not an option either.
This leaves Germany, which couldn’t pick
up the tab for the EU even if it tried. If Germany were to agree to fund things
as they are (assuming nothing worsens in the EU), it would amount of over 30%
of its GDP.
Never in history has one country issued a
transfer of that amount to another. The single largest transfer in history (on
a GDP basis) was the German Marshall Plan, which represented only slightly over
6% of US GDP (hat tip to Dr Malmgren for pointing this out).
So forget about Germany writing the
check. There will be political machinations and games played to maintain the
house of cards that is the EU… but when push comes to shove, Germany will leave
before it foots the bill for everything.
As for the EU’s banking crisis, again the
matter is one of capital. The EU banking system has over $46 trillion assets
making it nearly four times larger than that of the US. And while US leverage
levels are just 13 to 1 (this is across the board, the large Wall Street banks
are far more levered), the EU banking system is leveraged at an astounding 26
to 1.
To put this in context, Lehman Brothers
was leveraged at 30 to 1 when it went bust. Moreover, at a leverage level of 26
to 1, even a 4% decrease in asset values wipes out your entire capital
base.
So, unless EU banks raise over $1-2
trillion in capital in the near future (they won’t), they’ll go the way of
Lehman. This is just basic common sense. It doesn’t matter how many bailout
funds or crazy schemes the EU bureaucrats come up with, unless someone ponies
up actual capital to fund the banks and bring down their leverage levels,
they’ll got bust.
All of this stuff (a global economic
contraction, EU sovereign crisis, and EU banking crisis) will be hitting the
fan in 2013.
This is why I’ve been warning that 2008
was just the warm-up. What is coming will be far far worse.
If you’re looking for someone who can
help you navigate and even profit from this mess, I’m your man. My clients made money in 2008. And we’ve been playing the Euro Crisis to
perfection, with our portfolio returning 34% between July 31 2011 and July 31
2012 (compared to a 2% return for the S&P 500). Indeed, during that entire
time we saw 73 winning trades and only
one single loser. We’re
now positioning ourselves for the next round of the Crisis with several
targeted investments that will explode higher as the EU crumbles. Already three
of our picks are up more than 5% in the last week.To find out what they are,
and take steps to protect your portfolio from the inevitable collapse… Click Here Now! Graham Summers’