Day: December 12, 2011

Dec

2011

Want to Know the REAL DEAL in the EU? Talk to a CEO

One of the biggest problems facing the world today is the fact that most world leaders have little if any business experience. Those who do are inevitably investment bankers/ financiers who, while technically businessmen, have expertise primarily in financial engineering, NOT manufacturing goods or services that create actual job growth.

With that in mind, when analyzing what’s happening in Europe, it’s wise to consider what ACTUAL businesspeople are doing today with their corporations’ cash rather than what leaders are claiming is true about the financial system.

Case in point, every other week we are told that Europe’s problems will soon be solved and that the EU will be stronger then ever. If this is indeed the case, I wonder about the following story:

European CEOs Move Cash to Germany In Case of Euro Breakup

Grupo Gowex, a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank…

“A couple of weeks ago I would never have thought about having conversations on the probability of the euro disappearing, but now there is more speculation on such a scenario,” Wolters Kluwer NV (WKL) CEO Nancy McKinstry said in a Nov. 29 interview at the company’s headquarters outside Amsterdam…

Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, has considered plans for the possibility of a collapse of the euro region and will focus on cash generation to account for that possibility, Chief Executive Officer Ian Cheshire said.

http://www.bloomberg.com/news/2011-12-09/wary-european-ceos-move-cash-to-germany-to-protect-against-breakup-risk.html

These are REAL businesspeople who RUN corporations, preparing for the breakup of the Euro by moving their cash to Germany. Read the above article: it features executives from companies throughout Europe all of whom state they are preparing for a Crisis and the potential of a Euro breakup.

And if you think that politicians have somehow solved the banking crisis… read the following:

Eurozone banking system on the edge of collapse

If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.

Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.

http://www.telegraph.co.uk/finance/financialcrisis/8947470/Eurozone-banking-system-on-the-edge-of-collapse.html

If a bank has to resort to lending out GOLD reserves in order to get DOLLAR funding so it can maintain liquidity… then it’s on its deathbed. And this is happening in France, Italy and Spain RIGHT NOW.

It’s time we admit the truth, the EU and its banking system are literally on the edge of collapse. Think 2008… for an entire region. And politicians are going to solve this mess with a March 2012 meeting!?!

The impact of what’s coming will be TREMENDOUS. Europe’s banking system is over $40 trillion in size. The EU, taken as a whole, is:

1) The single largest economy in the world ($16.28 trillion)

2) Is China’s largest trade partner

3) Accounts for 21% of US exports

4) Accounts for $121 billion worth of exports for South America

So if the EU banking system/ economy collapses, the global economy could enter a recession just based on that one issue alone (ignoring the other issues in China, Japan, and the US).

Make no mistake, we’re heading into a Crisis that will make 2008 look like a picnic. If you’ve yet to prepare for this, I suggest you do so now.

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Best Regards,

Graham Summers

Dec

2011

Graham Summers’ Weekly Market Forecast (La La Land Edition)

Stocks have entered a kind of fantasy world, completely detached from any kind of economic, political, or financial reality. Indeed, last week the #1 driver of stock prices was unfounded rumors that were refuted within hours of their being published (I’ve circled the rumor-based rallies in the chart below).

Again, these were rumors… based on lies… that were refuted within hours of their being published… pushing the market into vertical rallies. Like I said, we’re in La La Land.

The reality of the financial system today is that we’re entering another global economic contraction. Earning have been abysmal in the US. Europe’s banking system is in a liquidity crisis on par with the post-Lehman Brothers collapse. China is entering a hard landing. And the US economy is in a second recession within a larger DE-pression.

The reasons stocks aren’t reacting to these realities (yet) are:

1) Hedge funds and institutions are desperately trying to boost their returns before year-end (most have had HORRIBLE years)…

2) Barring REAL selling pressure, most market action is dominated by high frequency trading programs (which don’t think or make qualitative judgments)… AND

3) Traders have been conditioned to only care about one thing: more juice from the world’s central banks.

Indeed, if you want the real story for what’s happening to the world economy, take a look at the agricultural commodities. They (not stocks) were the first asset class to pick up on inflationary pressures from the Fed’s largesse in 2010. They were also the first asset class to pick up on the downturn in global economic activity in February 2011. And right now, they’re reflecting a reality that is far, FAR uglier than the one equities are discounting

This is an UGLY, DEFLATIONARY chart. It is a chart the predicts a SHARP economic contraction. Indeed, commodities as a whole don’t seem to be buying into the “risk on” atmosphere that dominated equities for most of 2011 (with the exception of late July-August).

The final, most glaring example of stocks being in La La Land comes from their inability to comprehend the current situation in Europe. Europe’s banking system is in a full-scale liquidity crisis that rivals the aftermath of Lehman Brothers’ bankruptcy. Indeed, multiple European nations are relying on the ECB to insure they don’t post FAILED bond auctions.

Against this backdrop, EU leaders just decided to impose stricter budgetary requirements from EU members. Only in La La Land could this be viewed as progress. The EU already had budgetary requirements… which the PIIGS countries all ignored. So how will these NEW budgetary requirements change anything? And who or what is going to enforce them?

And yet… stocks viewed this decision as a success. Again, we’re in La La Land.

Does this mean stocks can’t rally more from here? Not at all, in La La Land stocks can rally for no reason at all. But you should be aware that the credit, bond and commodities markets are all indicating we’re heading into a MASSIVE wave of deflation in the near future.

Remember, stocks were the last to “get it” in 2008. They’re the last to “get it” today too. And when they finally DO “get it,” we’re going to see some REAL fireworks.

On that note, if you’re an individual investor (not a day trader) looking for the means of profiting from all of this, then you NEED to check out my Private Wealth Advisory newsletter.