Outside of beliefs, here are the key
developments you need to know:
1) Spain is now outright
demanding that the ECB monetize Spanish bonds (in other words, it’s back on the
brink of collapse after receiving a €100 billion bailout a few months ago).
2) Greece is asking for “room
to breathe” because… frankly it’s run out of money again despite receiving €240
billion in bailouts and failing to enact any real meaningful reform.
3) Both the ECB and Germany
have stated that no more funds are coming without strict conditions.
So… we’re essentially where we were
before this latest rally began. No new programs have been announced, no new
funds released, no new policies enacted.
And that’s been the most
frustrating part of what’s going on… nothing has actually happened,
but the markets have acted as though some massive new plan has emerged all
based on a whole lot of nothing.
Today as was the case a month ago,
everything ultimately hinges on Germany. It’s interesting to note that the
majority of this rally occurred while Angela Merkel was on vacation (as much of
Europe is during late July-August). One wonders if Mario Draghi purposely timed
his “bazooka” speech for when Germany was least likely to rain on the parade?
Political intrigues aside, Germany is
just about out of money. And Merkel has to decide… save Germany or save the EU.
Only one of these options is even possible at this point (save Germany) as the
EU is beyond saving.
Why do I say this? The EU banking system
is €36 trillion trillion in size. Total Eurozone banking deposits stand at €15
trillion. Even deposits at the current EU “problem” countries (Spain, Italy,
Portugal and Ireland) are €5.5 trillion.
Germany doesn’t have the funds to
backstop even 10% of this. That’s a fact. No one does. The money simply does
not exist. And if the ECB decided to print it, Germany would walk out of the
Euro (it may in fact do this regardless of what the ECB does).
These are the facts pertaining to
Europe. Everything else (all the claims of new plans/ new strategies, all the
stories of secret meetings, all of that garbage) is just one great big
distraction.
So if you somehow think Draghi or someone
else is going to pull out a magic wand and save the day, you might want to
think again. Did you know that Spanish citizens pulled 75 billions Euros out of
the Spanish banking system in July? Why is this a big deal? Because the ENTIRE
market cap for the Spanish Banking system is just 114 billion Euros.
That might be a problem. Also, consider
that France just nationalized its second largest mortgage lender. We all know
how things worked out for the US when we started nationalizing mortgage lenders
in 2008.
On that note, if you are not preparing
for a bloodbath in the markets, now is the time to do so. The reality is that
the Central Banks are fast losing their grip on the markets. They’ll never
admit this publicly, but I can assure you that Bernanke and pals are scared
stiff by what’s happening in the banking system right now.
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