http://albertpeia.com/truthabouteumediawontreport.htm
‘I realize that the situation in Europe
can be very confusing. Aside from the fact that we’re dealing with over 20
different countries all with their own respective economies and debt issues, we
also have the European Central Bank and the numerous bailouts and bailout funds
(the LTRO 1 and 2, the EFSF, the ESM and now the OMT) to keep track of.
So for clarity’s sake, I’m going to
explain Europe’s problems in simple terms.
The first thing you should know is that
European banks, taken as a whole, have far more leverage than their US
counterparts. According to the IMF, US banks are leveraged at 13 to 1.
European banks are leveraged at 26 to 1.
Put another way, they have $26 in assets for every $1 in equity.
Think of it this way, imagine if had
$100K in the bank and you borrowed $2.6 million to buy homes and other items.
Do you think you would be in a stable financial condition?
That’s Europe’s banks on the whole.
However, we also know that the IMF only
reports based on known assets or the asset levels that the banks admit. How
many times in the last few years have we found out that banks were being honest
and open about their risk levels?
Never.
So you should use the 26 to 1 leverage
level as the minimum. Reality is likely far worse. Which means…
European banks are insolvent.
Outside of this, European nations are
also bankrupt. I realize that everyone likes to focus on Debt to GDP levels,
but the reality is that European banks owe far more when you account for
unfunded liabilities.
I know the same is true for the US, but
the US’s unfunded liabilities pale in comparison to Europe’s. As far
back as 2004, we know that:
|
Country |
Debt to GDP Including Unfunded Liabilities |
|
Greece |
875% |
|
Spain |
244% |
|
Italy |
364% |
|
France |
549% |
|
Germany |
418% |
|
EU as
a whole |
434% |
|
US |
400% |
Source:
Cato Institute
So, we have a bankrupt banking system in
bankrupt countries.
Now for the zinger…
This entire financial system
is based on the assumption that European sovereign bonds are still are risk
free.
So you have bankrupt nations, selling
bonds to insolvent banks, which then use these bonds to leverage up to over 26
to 1 (by the way, Lehman was 30 to 1 when it blew up).
And that’s the ENTIRE European
financial system.
I hope this clarifies why Europe is
doomed. It is absolutely 100% impossible for Europe to get out of this mess
unless the entire union suddenly started growing its GDP at over 10% for a
decade.
That will never happen.
My advice to everyone: trust your gut.
All of the accounting gimmicks and bailout ideas will never work for the simple
fact that the system in Europe is totally broke. The US’s financial system,
while problematic (that’s putting it lightly) is nothing compared to
how bad Europe is.
I’ve said this before many times, but it
cannot be overemphasized… everything I’ve been writing about for nearly a year will
still happen. The fact that I was early and we were stopped out of our
Euro Crisis trades because the ECB promised “unlimited” bond buying right
before the Fed announced QE 3 doesn’t change the ultimate outcome: the
EU breaking up and a global financial meltdown.
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
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2012 (compared to a 2% return for the S&P 500).Indeed, during that entire
time we saw 73 winning trades and only
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