Looking out on the markets before the week begins the mood is very, very tense.

The European debt crisis continues to intensify with Greece moving to save one of its smaller banks (Proton) from failure. The Greek bank system does not have FDIC-style insurance, so a bank failure there means that the possibility of losing all of one’s money is in fact very real.

Elsewhere in the Eurozone, Spain and Italy are increasingly coming under fire with the ECB revealing it has purchased 34 billion Euros worth of their debt in the last two weeks. As I’ve noted in previous pieces, these two countries are the REAL problem for the Eurozone: they’re too big to be bailed out.

How this particular mess will play out all depends on Germany. No German support for the ECB’s moves and you’ve got no EU. And German politicians are becoming increasingly negative about further aid.

Indeed, over the weekend Angela Merkel announced that Euro-bonds (the new idea of floating bonds backed by… the EU?!?) wouldn’t solve the EU’s problems. Germany’s Finance Minister said the same thing, pointing out that Germany would be required to make $3.6 billion in interest payments for Euro-bonds in the first year alone, with the amount likely to increase to over $36 billion per year after the first decade.

Merkel’s party got slammed in the March 2011 German elections. With the next round of elections coming up in roughly one month’s time (and 56% of Germans saying the Euro has brought them disadvantages), the fate of the Euro will likely be decided within the next four months.

The market seems to be sensing this with the Euro coiling tighter and tighter in a triangle pattern. When this pattern breaks (likely to the downside) the Euro will take out critical support at 140 and begin its break to new lows (below the May 2010 lows of 118):

Aside from the European situation, the world is experiencing a global liquidity crisis that is now bordering on a “2008” situation. I’ve been warning about this to my Private Wealth Advisory subscribers since early July. However, we’re now beginning to see even Goldman Sachs and other large institutions publicly calling for a Crash. In other words, BUCKLE UP.

The S&P 500 has now wiped out a year’s worth of gains, bringing stocks back to roughly where they were when the Fed announced QE lite. The snapback rally of early last week proved to be exactly what I thought it was: a bounce from oversold conditions.

The tell-tale sign is that we’ve since had a sharp reversal erasing all of those gains. One more down day and we’re on to new lows and officially into a bear market in the US (20% off the peak). Which would put us up there with Spain, Switzerland, Russia, Germany, Brazil, Italy, India, and nearly every other major market in the world.

I’ve said before that stocks are the last to “get it.” What I mean by this is that the bond and credit markets typically adjust to changes in the world much faster than stocks. This is definitely true today as the US stock market has held up relatively well. However, Treasuries have rallied beyond even their May 2010 highs and are now approaching their 2008 highs:

In plain terms, the market’s are in full-scale Crisis mode. While stocks have bounce hard temporarily the rest of the financial system is in a complete and utter panic.

I warned to get defensive several weeks ago. That warning is even more important now. I would avoid stocks and Treasuries as neither are particularly safe. I’d have increased exposure to cash and PHYSICAL bullion (Gold and Silver). If you have to remain long stocks shift into large-caps and companies that will exist a year from now (brands and industries people will need regardless of how bad the economy gets).

However, if you’re looking for actionable investment ideas and in-depth market analysis that will not only get you through this mess, but actually help you make some money, you NEED to get in on my Private Wealth Advisory newsletter.

Over the last two weeks, while 99% of investors got crushed, Private Wealth Advisory subscribers locked in seven winners including gains of 6%, 7%, and 9% in as little as one day (no we were not using options, just stocks and ETFs).

My readers made money in 2008 and the Euro Crisis of 2010. They’re making money now. Almost all of our portfolio rose double digits last week.

My readers are also taking steps to prepare their families and loved ones for what’s coming with my Protect Your Family, Protect Your Savings, and Protect Your Portfolio reports, which are also included with every Private Wealth Advisory subscription.

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Good Investing!

Graham Summers