Submitted
by Tyler
Durden on 06/10/2012
While
the short-term benefits can be weighed against any long-term solution a number
of ways, Nigel Farage provides not just the most
colorful summation of situation but also the most succinct when he refers to
the 'madness' of 'intervention to keep
the Euro alive' as "reinforcement of failure". The
better, and braver, in his opinion, thing to do, is to recognize that those
Mediterranean countries should never have joined the Euro in the first place.
As we have stated again and again, by kicking-the-can once again to prop up the
euro-zone with bailout-after-bailout, all we are doing is prolonging the
misery. The discussion on Sky News digs into the collateral-damage 'strawman' - which will happen anyway - and then 'Red' Ken
Livingstone (an
infamously socialist-leaning British politician who advocated for Britain's
joining the Euro when it was formed) now somewhat notably agrees with Nigel
that we are "locking Europe into a decade
of permanent economic malaise" adding that once the smaller countries were added to the core,
"it was doomed to fail". The two 'odd fellows'
continue on to discuss the analogy of the USA to a United States of Europe
noting that it took a civil war and a century before a common monetary and
fiscal policy was accepted, adding simply that Europe's "nations will not give up their
sovereignty".
June
11, 2012 By gpc1981
The
Euro and stocks both gapped sharply up over the weekend on news that EU finance
ministers are moving forward with a €100 billion Spanish bailout.
A few
thoughts on this move:
1)
Where is the money coming from? (most EU Governments
are broke)
2)
What precedent is this setting? (
3)
How desperate are things that they’re making such a large move so quickly?
Regarding
this last point, Spanish political leaders have routinely denied needing a
bailout for months. This whole bailout feels more than a little rushed given
that Spain only formally requested a bailout (if you can even truly claim that)
over the weekend: the same period during which a bailout was granted.
Moreover,
it’s very difficult to believe that this will “solve”
Bankia was formed in 2010 when the Spanish
Government merged seven insolvent cajas (regional
banks). In plain terms, Bankia was a trainwreck waiting to happen… at least to anyone with a
working brain. However, both the bank itself and
the Spanish Government decided to maintain a charade that the bank was in great
form right up until it collapsed (only one month ago Bankia
was talking about paying its dividend).
Today,
Bankia has been nationalized after its initial
bailout request ballooned from €5 billion to €24 billion. Moreover, it has also
revised its 2011 results from a €309 million profit to a €3 billion LOSS.
The point I’m making here is that
both the Spanish Government and the Spanish Banks will play “extend and pretend”
as long as possible right up until they’re on the brink of collapse.
With
that in mind, I sincerely doubt €100 billion is going to solve
Indeed,
stocks and the Euro are already coming off their over the weekend highs. This
week will be critical for discerning the future of the markets. If risk assets
remain aloft, then investors are still willing to believe that the Powers That
Be can save/ maintain the markets.
But if stocks and the Euro tank this week…
after a major bailout move such as this… then watch out, because the REAL
Crisis has begun: the Crisis of faith in the actual financial system and the
institutions meant to prop it up.
If
this happens, then it’s GAME OVER for the Euro at the very least.
While
I hate to admit it, there is a good chance that this is indeed the more likely
outcome. The Fed meets on June 19-20 so we could see risk assets remain afloat
until then. But if Bernanke doesn’t pull a rabbit out of a hat at that meeting
then watch out because things
could get very ugly very, very fast.
With
that in mind, I’ve begun positioning subscribers of my Private Wealth Advisory for this very possibility. We’ve
already locked in over 20 winning trades this year by finding “out of the way”
investments few investors know about and timing our positions to benefit from
the various developments in