http://albertpeia.com/supermariosbigbluff.htm
The financial world has entered a new
state of mania with the announcement by the ECB that it will engage in
“unlimited” bond buying to maintain lower interest rates for trouble EU
sovereigns.
As you no doubt know, our firm’s forecast
was that the ECB would not engage in any large-scale bond purchasing programs.
We maintain this view today regardless of the ECB’s announcement.
The reason?
The ECB stated very clearly that new bond
purchases would only be made under strict conditions. Those conditions involve:
1) Applying for a bailout
from the EFSF
2) Meeting fiscal budget
requirements
3) Implementing major
spending cuts and various other austerity measures
If this list sounds rather familiar, it’s
the exact formula the ECB has used on Greece with absolutely abysmal results.
And now the ECB is going to apply this failed approach to the EU as a whole?
Let’s cut through the BS here. The use of
the word “conditions” completely negates the word “unlimited.” Saying that
you’ll buying “unlimited” bonds as long as EU sovereigns meet certain
“conditions” actually means nothing. Greece has
received over €200 billion in bailouts under “conditions.” How did that work
out?
So the ECB is not actually announcing a
massive new bond-buying program. Instead it’s just announced that it’s willing
to provide more money as long as EU nations hand over their fiscal sovereignty
and implement austerity measures.
This is nothing new. In fact,
this has been the exact same program that the ECB’s had in place ever since the
EU Crisis began in 2010. The fact that it has changed the wording
around a bit changes nothing from a fundamental standpoint. Indeed, the program
the ECB “announced” is, if anything, the last thing Spain or Italy actually
wants.
Spain already has an economy that is
bordering on a Greece-like disaster. And this is before implementing
any real austerity measures of note. So the likelihood that Spain will actually
go for any of the ECB’s “conditions” is remote. Indeed, Spanish
politicians have shown that they want their funding “unconditional.”
Spanish PM Rajoy challenges the
European central bank and Germany
Spain will consider seeking extra aid
from Europe on top of a 100 billion Euro rescue of its financial sector but
does not see any need for new conditions, Prime Minister Mariano Rajoy
said in an interview published in European newspapers.
That one paragraph says it all: give me
more money with no conditions.
This is coming from a man who demands
€100 billion in bailout funds, threatens to blow up the EU, and then goes to watch
a soccer match once he’s got the money.
This attitude as it appears to be endemic
for Spanish politicians:
Catalonia asks for €5bn bailout from
Spain
Spain’s north-eastern region of
Catalonia, which represents around a fifth of the country’s economic output,
will tap a state liquidity facility for just over €5bn, a spokeswoman for the
region’s economy head has said.
We will not accept political
conditions for the aid,” she added. Of Spain’s 17 regions, Valencia and Murcia have also said they would
need recourse to the fund.
Again, give “me more money with no
conditions.”
In closing, the new ECB program will
ultimately prove to be Mario Draghi’s big bluff. By presenting an old, failed
program as something “new” and “unlimited” in scope, the ECB has actually shown
that it’s essentially out of firepower.
Indeed, consider the following…
The ECB says it will buy EU sovereign
bonds if EU nations apply for bailouts from the EFSF. Spain and Italy (the very
countries that need bailouts) are meant to supply 30% of the EFSF’s
funding.
So this new program involves Spain and
Italy bailing themselves out, while simultaneously implementing austerity
measures so the ECB will buy their sovereign bonds?!?!
Oh, and by the way, the EFSF only has €65
billion in funding left. That will definitely be enough to bailout Spain and
Italy, seeing as Greece has received over €200 billion in bailouts is still
imploding.
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.
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 two losers.
We’re now positioning ourselves for the next round of the Crisis with several
targeted investments that will explode higher as the EU crumbles.
To find out what they are,
and take steps to protect your portfolio from the inevitable collapse…
Graham Summers