The Big Turning Point Has Finally Hit

The following is an excerpt from a recent issue of Private Wealth Advisory. In it I reveal that Germany has in fact already implemented a working group to assess the cost of Greece leaving the EU. Moreover, numerous multinationals are now preparing for this outcome as well.

If you’ve looking for investment ideas on how to profit from this collapse (the gains will be even bigger than those produced during the 2008 Crash) Private Wealth Advisory can show you how. We already have a handful of EU Crisis Trades open, all of which are moving up fast.

To find out more about Private Wealth Advisory and how it can help you navigate the coming crisis… Click Here Now!!!

I believe we are at a major turning point for the financial system.

For nearly four years, the entire financial system has been held together (just barely) by extraordinary interventions on the part of the world’s Central Banks.

These interventions have resulted in capital fleeing the markets (hence the low trading volume), moral hazard becoming the norm and a marketplace in which hope of more intervention has a greater impact than the actual intervention itself.

The problem with this, from day one, was that eventually we would reach the point at which additional intervention no longer had any effect. This would come about due to:

1)   Investors having grown so accustomed to Central Bank intervention that they no longer respond to additional measures.

2)   Central Banks facing a problem so massive that it is beyond their power to stop it.

Few people understand just how close we came to #2 early this past summer. Indeed, there was a brief period there, where we were literally on the verge of systemic collapse courtesy of the Spanish banking system imploding.

It all started with the collapse of Spain’s Bankia in May 2012. Bankia was formed by merging seven smaller bankrupt banks. In early May 2012 Bankia had to be nationalized. This was a potential Lehman moment that kicked off a massive bank run and resulted in the ECB putting the entire Spanish banking system on life support to the tune of over €300 billion Euros (the entire equity base for every bank in Spain is only a little over €100 billion).

At that time, the Spanish Ibex (stock market) broke out of its 20-year bull market and nearly took down all of Europe with it.

The one thing that held the system together was ECB President Mario Draghi promising that he may provide unlimited buying (which would give Spanish banks a chance to dump their assets in exchange for cash to fund liquidity needs… they were in that bad a shape). That pulled the system back from the edge and things rallied.

The ECB did indeed announce an unlimited bond buying program on September 6 2012. The Federal Reserve then announced an open-ended QE program a week later on September 13 2012.

And that’s when everything changed.

Instead of blasting off into the stratosphere, stocks fell soon after this announcement. That was the first sign that the game has changed: after every other announced program in the past four years, the markets fell briefly but then rallied hard and didn’t look back.

Not this time.

And so we experienced the first item I listed above (investors grew accustomed to Central Bank intervention that they no longer respond to additional measures).

We now are also experiencing #2 (Central Banks are facing a problem so massive that it is beyond the power to stop it). That problem is the fiscal cliff which Bernanke himself has admitted that the Fed cannot contain. “I don’t think the Fed has the tools to offset [the fiscal cliff].”

This is Ben Bernanke, arguably one of the most powerful if not the most powerful man in the Western financial system, admitting that the Fed doesn’t have the tools to address an issue. This has never happened before. For every single issue that has arisen going back to 2006, Bernanke claimed he had things under control.

Not this time.

So, we have investors now so accustomed to Central Bank intervention that even the promise of unending intervention doesn’t appease them… at the exact same time that an issue so great (the fiscal cliff) appears that even the Fed has admitted it cannot manage it.

No one is picking up on this because everyone is focusing on Black Friday and the Santa rally which I mentioned in last issue. But things have changed. And they have changed in a big way.

And no one has a clue how to deal with what’s coming.

If you’re an active investor looking for investment ideas on how to play this, I’ve recently unveiled a number of back-door plays designed to produce outsized gains from Europe’s next leg down. They’re available to all subscribers of my Private Wealth Advisory newsletter.

To find out more about Private Wealth Advisory (a bi-weekly investment advisory that focuses on the global economy and outlines which investments will do best in various environments)…

Click Here Now!

Best Regards

Graham Summers

Spain Now Faces a Systemic, Societal, and Sovereign Collapse

Spain’s financial system is at truly apocalyptic levels.

If you’ve been reading me for some time, you know that Spain has already experienced a bank run equal to 18% of total deposits this year alone (another story the mainstream media is avoiding). However, what you likely don’t know is that an on annualized basis, Spain has experienced portfolio and investment outflows GREATER THAN 50% OF ITS GDP.

To give this number some context, Indonesia only saw outflows equal to 23% of its GDP during the Asian Financial Crisis. Spain is experiencing more than DOUBLE this.

I’ve long averred that Spain will be the straw to break the EU’s back. By the look of things this is not far off. The country’s regional bailout fund has only less than €1 billion in funding left. As the below chart shows, this will barely make a dent in the regions’ debt problems:

Indeed, things are far far worse than is commonly know. Valencia for instance owes its pharmacies over €500 million. In some areas there is no longer insulin.

In the region of Andalusia some government workers haven’t been paid in eight months and are working for free while begging for food.

And Catalonia is pushing to secede from Spain entirely. Indeed, its pro-secessionist leader, President Artur Mas, just won the most recent election. And over 1.5 million of Catalonia’s 7.5 million inhabitants turned out for an independence rally in September.

Again, Spain as a country is finished. Things are so bad that British Airways (many wealthy Brits vacation in Spain) is putting a contingency plan for SPAIN to leave the Euro.

Worst of all, it is clear EU and Spanish leaders have no clue how to deal with any of this. Their latest plan is for the country to cut the balance sheets of three nationalized banks by 50% sometime in the next five years. How will they do this? By dumping their toxic property assets into a “bad bank.”

The idea here is that somehow someone will want to buy this stuff. Spain already had to postpone the launch of the bad bank by a month because no one wanted to participate in it (despite the mainstream media claiming that the idea was popular which is untrue).

So, here we have Spain proposing that it can somehow unload a ton of garbage debts onto “someone” even though there is no “someone” to buy them. And the whole point of this exercise is to meet conditions so that Spain would qualify for another €40 billion in aid.

€40 billion in aid... when  Spain has experienced portfolio and investment outflows of more than €700 billion.

Indeed, things are so bad that the ECB has put the entire Spanish banking system on life support to the tune of over €400 billion Euros. To put this number into perspective, the entire equity base for every bank in Spain is only a little over €100 billion.

Oh, and the country needs to issue over €200 billion in debt next year.

If you’re an active investor looking for investment ideas on how to play this, I’ve recently unveiled a number of back-door plays designed to produce outsized gains from Europe’s next leg down. They’re available to all subscribers of my Private Wealth Advisory newsletter.

To find out more about Private Wealth Advisory (a bi-weekly investment advisory that focuses on the global economy and outlines which investments will do best in various environments)…

Click Here Now!

Best Regards

Graham Summers

 


 

The EU Just Lost Another Prop

Meanwhile, as Greece continues to distract the markets, France, the other primary prop for the EU besides Germany, is now experiencing an economic contraction on par with that of 2008-2009.

Indeed, France’s September’s auto sales numbers were worse than those of September 2008 (the month Lehman collapsed). The country’s PMI reading is back to April 2009 levels. Even the French Central Bank, which would hold off as long as possible before unveiling bad news, has announced the country will re-enter recession before year-end.

Over the past few weeks, an extraordinary cry of alarm has risen from chief executives who warn that the French economy has gone dangerously off track. In an interview to be published on Nov. 15 in the magazine l’Express, Chief Executive Officer Henri de Castries of financial-services group Axa (CS:FP) warns that France is rapidly losing ground, not only against Germany but against nearly all its European neighbors. “There’s a strong risk that in 2013 and 2014, we will fall behind economies such as Spain, Italy, and Britain,” de Castries says.

On Nov. 5, veteran corporate chieftain Louis Gallois released a government-commissioned report calling for “shock treatment” to restore French competitiveness. And on Oct. 28, a group of 98 CEOs published an open letter to Hollande that said public-sector spending, which at 56 percent of gross domestic product is the highest in Europe, “is no longer supportable.” The letter was signed by the CEOs of virtually every major French company. (The few exceptions included utility Electricité de France, which is government controlled.)

            http://www.businessweek.com/articles/2012-11-14/french-ceos-help

We get additional confirmation that France is in big trouble from its partner in propping up the EU, Germany.

German Finance Minister Wolfgang Schaeuble has asked a panel of advisers to look into reform proposals for France, concerned that weakness in the euro zone’s second largest economy could come back to haunt Germany and the broader currency bloc.

Two officials, speaking on condition of anonymity, told Reuters this week that Schaeuble asked the council of economic advisers to the German government, known as the “wise men”, to consider drafting a report on what France should do…

The biggest problem at the moment in the euro zone is no longer Greece, Spain or Italy, instead it is France, because it has not undertaken anything in order to truly re-establish its competitiveness, and is even heading in the opposite direction,” Feld said on Wednesday.

“France needs labour market reforms, it is the country among euro zone countries that works the least each year, so how do you expect any results from that? Things won’t work unless more efforts are made.”

http://uk.reuters.com/article/2012/11/09/uk-germany-france-economy-idUKBRE8A80MN20121109

France will be a bigger problem than Spain or Italy for the EU?!?! That is one heck of an admission from a German official. If France deteriorates then it’s game over for the EU.  The current bailouts mean Germany is already on the hook for an amount equal to 30% of its GDP. If France tanks the amount will balloon astronomically. At that point it’s game over.

If you’re an active investor looking for investment ideas on how to play this, I’ve recently unveiled a number of back-door plays designed to produce outsized gains from Europe’s next leg down. They’re available to all subscribers of my Private Wealth Advisory newsletter.

To find out more about Private Wealth Advisory (a bi-weekly investment advisory that focuses on the global economy and outlines which investments will do best in various environments)…

Click Here Now!

Best Regards

Graham Summers

 

 

Behind the Scenes, Germany is Already Preparing For a Grexit

The following is an excerpt from a recent issue of Private Wealth Advisory. In it I reveal that Germany has in fact already implemented a working group to assess the cost of Greece leaving the EU. Moreover, numerous multinationals are now preparing for this outcome as well.

If you’ve looking for investment ideas on how to profit from this collapse (the gains will be even bigger than those produced during the 2008 Crash) Private Wealth Advisory can show you how. We already have a handful of EU Crisis Trades open, all of which are moving up fast.

To find out more about Private Wealth Advisory and how it can help you navigate the coming crisis… Click Here Now!!!

The US Presidential election is over and the world has woken up from the political rhetoric and propaganda to realize that the problems it faced before November 6 are still in place. Indeed, one could very well make the case that the US Presidential Election distracted most people from the fact that things were in fact getting markedly worse in the financial system.

Let’s start with Europe.

Greece has managed to get through its latest budgetary crisis (a €5 billion bond redemption due the Friday before last) by the skin of its teeth. In this case, the ECB permitted Greece to redeem asset-backed-securities (read: total and complete garbage) in exchange for funds.

This deal occurred commensurate with the usual promised budgetary cuts on the part of Greek politicians (none of which will be met as usual) along with the Greek populace rioting in Athens. This has been and will remain the deal in Greece right up until someone cuts off funding. At that point Greece will leave the EU, default or both.

Timing this will be quite difficult, but Germany has already given us clues that it is preparing for a Greek exit.

         Debt crisis: German finance ministry examines cost of Greek exit

A special working group, led by deputy finance minister Thomas Steffen, is working on scenarios in the case that Greece is forced to withdraw from the 17-nation bloc, the Financial Times Deutschland reported on Friday.

“Colleagues are making calculations about the financial consequences [of an exit] and are considering how a domino effect on other euro member states might be prevented,” it quoted a finance industry source as saying.

The ten-member working group, which is made up of officials from various finance ministry departments, wanted to be fully prepared for a possible “negative scenario,” the source added.

Last week, German finance minister Wolfgang Schaeuble said it would be “stupid” not to make contingency plans in case Europe’s rescue efforts failed, adding that the debt crisis must not become a “bottomless pit” for Germany.

http://www.telegraph.co.uk/finance/financialcrisis/9496397/Debt-crisis-German-finance-ministry-examines-cost-of-Greek-exit.html

This news story received almost no coverage from the mainstream media, despite its import.

Firstly, this is the first time Germany has officially moved to prepare for a Grexit. Germany has certainly threatened to kick Greece out, but it has never actually taken formal, official steps to prepare for this.

Since August 24 2012, it has.

There is good reason for this and we get clues from German Finance Minister Schauble’s “bottomless pit” comments in the above article.

Schauble made this comment once before back in February 2012 before the second Greek bailout:

Schaeuble pointed out that German opinion polls show a majority of Germans are willing to help Greece.

“But it’s important to say that it cannot be a bottomless pit. That’s why the Greeks have to finally close that pit. And then we can put something in there. At least people are now starting to realize it won’t work with a bottomless pit.”

Schaeuble said Greece would be supported “one way or another” but warned the country needed to do its homework on improving its competitiveness and hinted it might have to leave the euro zone to do that.

http://www.reuters.com/article/2012/02/12/us-germany-greece-idUSTRE81B05N20120212

Note that in reference to Greece being a bottomless pit, Schauble was already hinting that Greece may leave the EU even before the second Greek bailout occurred.

The fact that Schauble has now formed a working group to measure the impact of a Grexit while again referring to Greece as a “bottomless pit,” shows clearly that he is about done with propping up Greece… and for good reason.

Currently Germany is on the hook for €751 billion in EU backstops. The German economy is only €2.5 trillion. Put another way, Germany is on the hook for an amount equal to of its GDP.

Anyone who believes Germany will actually pony up this cash is dreaming. The single largest transfer payment in history was the German Marshall Plan, which was $13 billion at a time when US GDP was just $200 billion.

This constituted a transfer of slightly over 6% of US GDP.

That is the single largest transfer in history… and Germany is going to bailout Europe by an amount equal to over FIVE TIMES this?

This is simply not going to happen. Germany will play ball with the EU by signaling its efforts to keep things together, but the German’s have in fact been implementing a contingency plan for nearly one year now.

I broke this story in February 2012. I haven’t seen it mentioned anywhere else. I wrote:

…Germany has put into place a contingency plan that would permit it to leave the Euro if it had to.

As a brief recap, this contingency plan consists of:

1)    Legislation that would permit Germany to leave the Euro but remain a part of the EU.

2)    The revival of its Special Financial Market Stabilization Funds, or SoFFin for short, to which Germany has allocated 480€ billion Euros to in the case of a banking crisis (the fund will also permit German banks to dump their euro-zone government bonds if needed).

This occurred back in February. And Germany now has a formal working group assessing the cost of a Grexit? The EU is on borrowed time. I mentioned earlier this year that German tourism companies have put contingency plans for the return to the Drachma in the contracts for their Greek subsidiaries. However, now even large US-based multinationals are implementing contingency plans for a Grexit.

The list includes JP Morgan, Bank of America Merrill Lynch, Visa, PricewaterhoursCoopers, Boston Consulting Group, Juniper Networks, and others.

Buckle up, things are about to get ugly.

This is why I’ve been warning that 2008 was just the warm-up. What is coming will be far far worse.

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. Already three of our picks are up more than 5% in the last week.

To find out what they are, and take steps to protect your portfolio from the inevitable collapse…

Click Here Now!

Graham Summers

Enjoy the Holidays, Because Next Year Will Be Horrific

This is going to be a very special holiday season. The reason? It’s the last hurrah before things get very very ugly.

Just off the cuff, you need to know that:

1)   China, the EU, and the US (comprising over 50% of Global GDP) are in recession already. The EU has already announced this. Look for the formal announcements concerning the US and China to hit the airwaves next year.

2)   Some data points concerning these nations indicate that this recession will be on par with that of 2007-2008.

A rising tide raises all ships. Similarly, a sinking tide lowers everything. Bear this in mind as a global economic contraction will have severe implications for everything.

Beyond the global economy, we now face sovereign and banking crises in Europe.

Regarding the sovereign crisis, the whole issue boils down to where the money will come from. The ECB has pumped the system full of liquidity to help sovereigns meet their funding needs, but unless real capital shows up (not piling just more cheaper debt onto of old debt).

The ECB cannot make capital appear. And the various bailout funds (the EFSF and ESM) all need Spain and Italy, neither of which have any money to spare, to contribute 30% of their funding. So they’re not an option either.

This leaves Germany, which couldn’t pick up the tab for the EU even if it tried. If Germany were to agree to fund things as they are (assuming nothing worsens in the EU), it would amount of over 30% of its GDP.

Never in history has one country issued a transfer of that amount to another. The single largest transfer in history (on a GDP basis) was the German Marshall Plan, which represented only slightly over 6% of US GDP (hat tip to Dr Malmgren for pointing this out).

So forget about Germany writing the check. There will be political machinations and games played to maintain the house of cards that is the EU… but when push comes to shove, Germany will leave before it foots the bill for everything.

As for the EU’s banking crisis, again the matter is one of capital. The EU banking system has over $46 trillion assets making it nearly four times larger than that of the US. And while US leverage levels are just 13 to 1 (this is across the board, the large Wall Street banks are far more levered), the EU banking system is leveraged at an astounding 26 to 1.

To put this in context, Lehman Brothers was leveraged at 30 to 1 when it went bust. Moreover, at a leverage level of 26 to 1, even a 4% decrease in asset values wipes out your entire capital base.

So, unless EU banks raise over $1-2 trillion in capital in the near future (they won’t), they’ll go the way of Lehman. This is just basic common sense. It doesn’t matter how many bailout funds or crazy schemes the EU bureaucrats come up with, unless someone ponies up actual capital to fund the banks and bring down their leverage levels, they’ll got bust.

All of this stuff (a global economic contraction, EU sovereign crisis, and EU banking crisis) will be hitting the fan in 2013.

This is why I’ve been warning that 2008 was just the warm-up. What is coming will be far far worse.

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. Already three of our picks are up more than 5% in the last week.

To find out what they are, and take steps to protect your portfolio from the inevitable collapse…

Click Here Now!

Graham Summers