My prediction regarding the breakup of the EU was obviously way early.
However, the fact remains that the EU will break up in time. And it will likely be Spain that brings this about.
The reasons? Among other things:
- Spain’s private Debt to GDP is above 300%.
- A huge portion of Spain’s banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
- Spanish banks are drawing over €400 billion from the ECB on a monthly basis (up from €377 in June) to fund their liquidity needs.
- Spanish banks are now net sellers of Spanish sovereign bonds (leaving the ECB as the only buyer in the market)
- Spain’s banking system has lost 18% of its deposits in the last 10 months due to a staggering bank run.
- The economy of Spain is a disaster with total unemployment over 25% and youth unemployment above 50%.
- Spain is now facing a constitutional crisis with various regions looking to secede if they don’t receive bailouts from the Federal Government “without conditions.”
- Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.
So Spain will suffer a collapse, most likely of its banking system resulting in a sovereign default (barring a bailout). When this happens, some €1 trillion+ worth of collateral (still rated AAA by EU banks) will be sucked out of the system.
This in turn will spur margin and collateral calls on tens of trillions of Euros’ worth of derivative trades.
And the EU Financial System collapses.
This is reality, regardless of who wins the US election. It may take a few months before it hits… but it will hit.
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 one single loser. 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…