We have just completed a series of videos detailing some of the risks posed to the financial system by the Federal Reserve as well as the European banking crisis.
These videos are free and available at:
Best Regards,
Graham Summers
In case you missed it, something of major import occurred today.
That something is the Bank of England announcing that it is suspending its QE efforts because of questions relating to its “potency.”
This is a heck of a statement from a Central Bank. And it’s coming from the one that has even outdone Bernanke’s QE efforts.
Since the crisis began, the BoE has announced QE efforts equal to $598 billion. The UK’s GDP is $2.43 trillion. So the BoE has engaged in QE equal to over 20% of the UK’s GDP. By way of comparison, the US Fed has announced QE equal to about 12% of the US’s GDP (I’m not counting Twist here).
Despite this massive amount of QE, 2.53 million people are out of work today in the UK, up from 2 million at the start of the Great Crisis in 2007. Similarly, the UK’s GDP remains well below its peak.
In simple terms, QE fails to generate economic growth or jobs. End of story. The BoE spent 20% of the UK’s GDP on QE (a truly staggering amount) and more people are unemployed now than when it started. And GDP has yet to get even close to its pre-Crisis highs.
And yet, the US Federal Reserve continues to believe that QE is the answer to our economic prayers. At this point they’re not only ignoring history, but they’re ignoring real world examples (the UK), which show that QE fails to aid the economy or jobs in any meaningful way.
Meanwhile, the cost of living continues to spike around the world. Workers have demanded wage hikes everywhere from Chicago to Germany to China. Food prices continue to rise as does energy.
There is a word for this… it’s called stagflation. And it never ends well. Which is why I strongly urge everyone to prepare for tings to get much much worse before they get better.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we have lowered the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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.
And this incredible newsletter is now on sale at $249 for the next 12 hours (until tonight at midnight).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
To take advantage of this Special Offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
The Obama Administration has won its second term. And now that the election is over we can come to grips with the fact that nothing has been fixed and that the math is impossible both in Europe and here.
First and foremost, Greece is out of money… again.
The country is currently embroiled in a new 48 hour strike to protest the next wave of austerity measures which will be voted on today in order for Greece to qualify for the next round of bailout funds.
The bailout in question, €31.5 billion, was actually due five months ago but was not paid as Greece has failed to meet budgetary requirements. Without this money the country will run out of funds by November 16. We’ll see how this pans out but suffice to say the same issues (Greece is broke and will remain in the EU as long as it gets money) are still in play. None of them are good.
Then of course there is Spain, which continues to present impossible ideas to deal with its impossible economic situation. The country currently has just €37 billion in cash lying around. With this, it somehow plans on buying €60 billion worth of bad bank assets.
This is doable over time… provided that Spain doesn’t have a single other problem occur. Unfortunately, we’re up to five regions requesting bailouts leaving just €3 billion in funds available for any other regions that face a shortfall (there will be more).
Meanwhile, Spanish banks continue to draw over €400 billion from the ECB… up from €300+ in June. And on top of this, the country needs to raise €207 billion next year while keeping rates low.
And then of course there is the US…
The US re-entered recession in June 2012. And we are now facing the fiscal cliff again with the threat of tax hikes hitting in early 2013. We also have $16 trillion in debt and are running our fourth $1+ trillion financed by the US Federal Reserve which bought over 70% of all US Treasury issuance last year.
Speaking of the Fed, Obama’s win means Bernanke’s job is secure at least until he decides he wants to step down… which if he has any sense he’ll do so that the disaster waiting to unfold can happen on someone else’s watch.
That someone else will likely be Janet Yellen, the current Vice Chair of the Fed, who is an even bigger dove/fan of money printing than Bernanke (she said that QE 3 would “benefit the world,” a truly staggering claim given the increase in inflation both in the US and especially in emerging markets).
What does this mean?
Simple… the very same problems that the world faced on November 5, 2012 remain in place. And we now know that those in power (Bernanke and Draghi) favor money printing over everything else. So the cost of living/ inflation will continue to rise and the world will lurch ever closer to the great debt implosion that will eventually take down the financial system.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we have lowered the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next 12 hours (until tonight at midnight).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because tonight at midnight, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
Mitt Romney has stated repeatedly that he would fire Bernanke if elected.
If this does indeed happen, then the inflation trade and QE will be finished. The market is already sensing this. Gold topped out right around the first debate when Romney began to surge in the polls:
Right around that time, the US Dollar caught a bid.
Now, I’m not saying that Romney will win the election. But the movements in Gold and the US Dollar have been suggesting that he has a good chance ever since the first debate.
This also points to problems for Europe.
For certain, no matter who wins today, Europe’s a complete disaster. Greece is once again out of money and will need someone (though at this point it’s not clear who is willing to pony up the cash) to foot the bill.
Elsewhere, Spain continues to lurch to a full-scale collapse. We now have a sovereign debt crisis exacerbated by the fact that the primary buyers of Spanish bonds (Spanish banks) are now net sellers as they are forced to sell everything to free up cash to meet Spain’s massive bank run (18% of deposits have fled the country since the start of the year).
The country recently proposed creating a bad bank to buy up €60 billion worth of bad debts. Nevermind that Spain doesn’t have €60 billion (its regional bailout fund it out of funds and even if you include the €30 billion Spain has already received from its bailout, you’re still €30 billion short).
Now Prime Minster Rajoy is wanting to know if ECB intervention will bring Spanish yields down. Was this guy not paying attention throughout 2011 when the ECB intervened constantly and Spain still saw its bonds collapse?
I’ve said it many times before and I will say it again… Spain will take down the EU. It’s only a matter of time. By Rajoy’s own admission the country needs €500 billion (realistically it’s even more than that).
And somehow someone will be able to come up with that money?
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we are lowering the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next six days (until tonight at midnight).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because tonight at midnight, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
Yesterday we assessed the impact a second Obama term would have on the US economy and markets. Now let’s assess what impact a Romney Presidency would have on the US economy and financial markets.
For starters, Romney has already stated that he would fire Fed Chairman Ben Bernanke if he wins office. While this doesn’t represent the real shakeup that the Fed needs, it’s definitely a step in the right direction.
With that in mind, if Romney wins and makes good on this promise to fire Bernanke, then we need to consider that any market rally that occurs based on the perception that the US economy would strengthen would be short-lived.
The reason for this is that the primary driver of stock prices over the last four years has been the hope and promise of Fed intervention. So if Bernanke were to be fired (or more likely step down as Fed Chairman) the market would lose one of its biggest props.
What would follow would be a potentially hellacious correction as the markets adjusted to the underlying realities of the US economy. Based on the business cycle, this would put the S&P 500 down near 1,000 or so (and that’s ignoring any other negative items developing).
This was the very problem with the Fed intervening so heavily to begin with: by attempting to prop the markets up, the Fed didn’t let the bad debts clear out of the system. As a result, the big reset has been pushed down the road.
If Romney wins the Presidency, it’s quite possible he would let that reset finally hit. After all, he could easily fire the economists at the BLS who have massaged the data, fire Ben Bernanke, and then blame the subsequent market correction and bad, but realistic economic data on Obama (much as Obama has blamed the bad economy he inherited on Bush).
Another issue to consider is that if Romney wins and does fire Bernanke and cuts back on spending, then the “inflation trade” could take a hit.
Bear in mind, Gold and Silver would continue to see increased demand based on investors fleeing the Euro and from Central Banks buying. However, a Romney win, accompanied by cuts in Government spending, would result in a powerful US Dollar rally, especially when you consider the state of affairs in other major world currencies (the Euro, Yen, and Yuan will all likely collapse before the US Dollar).
I have noted, as I am sure you have, that both Mitt Romney and Paul Ryan have mentioned that if the US does not get its deficit and debt in check, it will end up like “Greece.” The Obama camp has made no such statements and in fact never refers to the European disaster.
I also want to draw your attention to the fact that several EU leaders have stated that the Obama administration has asked for them to keep things calm until after the election.
Troika report on Greece may come after U.S. vote
“The Obama administration doesn’t want anything on a macroeconomic scale that is going to rock the global economy before November 6,” a senior EU official told Reuters, adding that previous troika reports had also slipped.
The European Commission’s representative on the troika, Matthias Mors, denied that the report could be delayed, and an official at Greece’s finance ministry said he had been assured that there would be no slippage.
A U.S. official said the United States had made clear to European officials that it wanted to avoid any “downside” economic surprises because of the fragile U.S. recovery, but denied that it had anything to do with the U.S. election.
Several sources in Germany described those conversations with their U.S. counterparts and said the message had been that the Americans didn’t want surprises before the election.
http://uk.reuters.com/article/2012/09/21/uk-eurozone-greece-report-idUKBRE88K0OQ2012092
This, combined with reports that EU leaders do not like Romney indicates that they perceive Romney as a threat. Given that the EU is only being held together by Central Bank intervention, this threat can only be based on the idea that Romney will not move to help Europe with its financial difficulties (and will be anti-Fed intervention).
So, if Romney wins the election and pulls back from aiding Europe (Europe will collapse at some point no matter who wins, but it’s clear that Obama would be more lenient in terms of providing help) then a Euro collapse would certainly have a negative impact on precious metals.
However, this move would be short-lived as investors would increasingly turn to Gold and Silver once major paper currencies began to fail.
So if Romney wins the election and makes good on his promises to cut spending, rein in the debt, and fire Bernanke we would very likely see another round of deflation.
However, after this period ends, the US stock market and economy would begin to actually put in a sound base from which to grow. At that point we would have a truly extraordinary opportunity to buy many high quality companies at truly insane prices.
So… make a wishlist of companies you’d like to own in case of a Romney victory. Watch and wait for Romney to actually fulfill his promises (if he doesn’t the outcome will be very similar to if Obama wins: more debt, more spending, and more inflation). If he does, the markets will correct sharply. But after the smoke clears, it will be time to buy in a big way.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we are lowering the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next six days (until next Tuesday).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because once next Tuesday hits, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
The Obama Administration thus far has proven itself in favor of increased Government control and Central Planning. That is, the general trend throughout the last four years has been towards greater nationalization of industries (first finance, then automakers and now healthcare and insurance), as well as greater reliance on our Central Bank to maintain our finances.
Last year the US Federal Reserve bought over 70% of all US debt issuance. During this period we saw decreased buying from both China and Russia. That is a big problem because as noted before, hyperinflation unfolds when a country loses credibility in the global markets. The fact that foreigners are increasingly shunning US Treasuries is the first step in that direction.
If the Obama administration gets another turn in office, there is no indication that this trend will end. We must recall that regardless of what is said, it was Obama who re-appointed Ben Bernanke as Fed Chairman. And it was under Obama’s watch that QE lite, QE 2, Operation Twist 2, and now QE 3 were launched. It was also under Obama’s watch that the US reached a Debt to GDP ratio of over 100%.
Indeed, at no point in history has the US had this much debt during peacetime. And the fact that we’re overspending by this amount at the exact time that other countries are showing signs of shunning US Treasuries is a formula for disaster.
The line to watch is identified below. Whenever the 30-year Treasuries break below this line, we’re in ENORMOUS trouble as the 30+ year bull market in US bonds is over.
The Obama administration has used debt to finance its various programs and overspending. If Obama wins a second term, I see no indication that this will change. There have been no actionable plans proposed by the Obama administration on how to tackle the debt or deficit issues. And it’s highly likely that should Obama win in 2012, he will surround himself with the same Keynesian economists who believe that a country can spend its way back into growth.
With that in mind, it is highly likely that the US would enter a currency crisis during Obama’s second term should he win. In preparation for this, investors will want to focus on the following investment themes:
1) Inflation hedges based on continued spending and money printing.
2) Gold and Silver as an alternate currency based on the US Dollar falling further.
3) Productive assets (foreign real estate, apartments in specific markets, businesses, essentially anything that produces cash).
4) Preparing for an eventual US Debt Default.
These are the big picture broad strokes of what is likely to pass if Obama wins a second term. I’ll detail the impact of a Romney candidacy tomorrow.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we are lowering the price of an annual subscription of my Private Wealth Advisorynewsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next six days (until next Tuesday).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because once next Tuesday hits, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
Spain continues to heap one impossible idea on top of another.
The latest “plan” consists of Spain creating a bad bank called SAREB that will buy up bad assets in Spain in an effort to clean up the country’s finances.
SAREB was part of the €100 billion Spanish bailout plan which was set forth in June. Once again, none of it makes any sense.
Spain’s Bad Bank to Buy Up Assets
SAREB, which is set to begin operations on Dec. 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country’s housing market four years ago.
Fernando Restoy, head of Spain’s bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement.
It will apply an average 63% discount on land and housing units and an average 46% discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14% for any investors in the bad bank.
http://online.wsj.com/article/SB10001424052970204789304578087030239493360.html?mod=googlenews_wsj
Wait a second… isn’t Spain bankrupt?
After all, their regional bailout fund has used up all of its funds, the country has only received €30 billion of the original €100 billion bailout, and Spanish banks are now beyond broke, selling even Spanish sovereign bonds to free up cash to face a systemic bank run (18% of deposits have fled Spain this year alone).
So where exactly is the €60 billion going to come from? Even if Spain uses all of the €30 billion it’s received in bailout funds so far, it’s still €30 billion short.
Even if Spain were to get the funds together to do this… this move is still not big enough. Spanish Prime Minister Rajoy admitted in private that Spain’s real funding needs are in the ballpark of €500 billion. And that’s assuming he knows the true state of Spain’s finances (unlikely given that he’s a career politician with no financial background).
Folks, we’ve been through this whole mess before with Bankia.
For those who have forgotten, Bankia was planning on issuing a dividend just one month before it was nationalized. Then, within the span of a few weeks, it:
1) Requested a bailout for €4.5 billion which eventually rose to €19 billion.
2) Revised its 2011 profits to a €3.3 billion loss.
3) Had to be nationalized.
This is what all of us should keep in mind as a true representation of Spain’s financial system: a completely artificial appearance that comes crashing down in a matter of days.
A few final thoughts on Spain:
1) In June, Spanish banks were drawing €300 billion or so from the ECB, today that number is north of €400 billion. If things were improving it should be shrinking.
2) As mentioned earlier, Spanish banks which were essentially the only buyers of Spanish sovereign bonds are now selling them to meet funding needs due to the country’s bank run. So who is going to buy Spanish sovereign bonds? The ECB? How and when?
3) Spain’s unemployment just topped 25% (again the wrong direction for things to be moving).
At the end of the day, you can announce all the fancy sounding programs you like. But unless someone comes up with actual cash none of it announces to much other than political posturing.
With that in mind, Spain remains the primary issue for Europe. I cannot say when this house of cards will come crashing down, but crash it will. It’s only a matter of time.
Indeed, between Spain’s woes, a hard landing in China, the EU, China and US in recession, and the like, I cannot actually remember a single time in which the global economy and financial system have faced this many difficulties. And that includes the build up to the 2008 Crash.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we are lowering the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next six days (until next Tuesday).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because once next Tuesday hits, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
Looking around the economic and financial world today, I see countless negative developments and virtually no positive developments to speak of.
Just off the cuff, I note that:
Against this backdrop, the one remotely positive development as far as the markets are concerned is the belief that Central banks will somehow solve these problems via endless liquidity.
However, even this is now proving to be a false premise.
The problem with this is that the primary driver of stock prices over the last three years has been the anticipation of more monetary stimulus from Central Banks.
Indeed, the New York Fed itself has openly admitted that were it to remove the market moves that occurred around Fed FOMC meetings (the times when the Fed announced new programs or hinted at doing so), the S&P 500 would be at 600 today:
So, by announcing a program that will be on going in nature, the Fed has removed the anticipation of future Central Bank intervention from investors’ psychologies. This could become highly problematic, especially if these latest announcements turn out to be duds.
Sure enough, stocks are actually down since QE 3 was announced on September 13 2012.
So we’ve got over 50% of the global GDP (China, the EU, and the US) in recession, combined with Europe’s banking and sovereign crisis… at the exact time that the Fed appears to have run out of ammo.
It’s truly astounding. I cannot actually remember a single time in which the global economy and financial system have faced this many difficulties. And that includes the build up to the 2008 Crash.
Now more than ever, investors need to get access to high quality guidance and insights. There sheer magnitude of the issues the global financial system is facing is enormous!
For that reason, we are lowering the price of an annual subscription of my Private Wealth Advisory newsletter to just $249 (down from $300).
Private Wealth Advisory is my bi-weekly investment advisory service tailor made for individual investors who want to stay informed of the real story in the global economy and outperform markets.
To whit, 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).
And this incredible newsletter is now on sale at $249 for the next six days (until next Tuesday).
So if you’ve been holding off on subscribing to Private Wealth Advisory for whatever reason, this is your one chance to subscribe now, and lock in a price of $249 for the lifetime of your subscription.
Because once next Tuesday hits, the price is going back up to $299 and will stay there for good.
To take advantage of this Special One Time offer… and start receiving my hard hitting, global market investment commentary delivered to your inbox every other Wednesday…
Best Regards,
Graham Summers
Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.
Here’s a recap of some of the larger Fed moves during the Crisis:
And this is just a brief recap. I’m almost certain I left something out. Indeed, between 2008 and today, the US Federal Reserve has grown its balance sheet from $800 billion to almost $3 TRILLION in size (larger than the economies of Brazil, the UK, and France).
The Fed is not the only bank to engage in such profligate policies either. Thanks to its bond purchases as well as its LTRO 1 and LTRO 2 schemes, the European Central Bank (ECB) has in fact grown its balance sheet even larger than the Fed.
| Country | GDP |
| European Union | $16 trillion |
| United States of America | $14.5 trillion |
| China | $5.8 trillion |
| Japan | $5.4 trillion |
| European Central Bank | $3.8 trillion |
| Germany | $3.2 trillion |
| US Federal Reserve | $2.8 trillion |
| France | $2.5 trillion |
| United Kingdom | $2.2 trillion |
As a result of this, inflation hedges, particularly Gold have been soaring. Gold was, is, and always will be THE ultimate storehouse of value. Mankind was prizing it long before the concept of stocks, mutual funds, or paper money even existed.
So with world central banks printing paper money day and night it is no surprise that Gold is now emerging as the ultimate currency: one that cannot be printed. Indeed, Gold has broken out against ALL major world currencies in the last ten years. The below chart prices Gold in Dollars (Gold), Euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):
Now, a lot of commentators have noted that gold is already trading above its 1980 high ($850 an ounce). What they fail to note is that thanks to inflation, $1 in the ‘70s is worth a LOT MORE than a $1 today.
|
$1 in… |
Is Worth Today |
|
1970 |
$5.49 |
|
1980 |
$2.58 |
For gold to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it’d have to hit $4,666 per ounce.
If you do not already have exposure to Gold, consider getting some now. If you do decide to buy, I strongly urge you to buy actual physical bullion because it is not clear that the various Gold ETFs actually own the bullion they claim to
On that note, we just published a Special Portfolio of unique inflation hedges: investments that will not only maintain their purchasing power but will outperform even Gold and Silver as the Fed and ECB debase their respective fiat currencies.
We’re talking about investments of extraordinary value that 99% of investors are unaware of: asset plays trading at massive discounts to their underlying values. The kind of investments that can show you double-digit returns in a very short period.
This portfolio will be made available only to subscribers of our Private Wealth Advisory newsletter. The last time we opened a similar portfolio, we saw gains of 28%, 41% and 42% in a matter of months. We expect similar returns this time around as well.
To find out more about Private Wealth Advisory and get on board for this Special Inflation Portfolio…
Phoenix Capital Research
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:
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…
Graham Summers
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 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…
Graham Summers
As noted earlier in yesterday’s article, the entire European banking and corporate system is over-burdened with debt.
Germany sports a real Debt to GDP of over 200% (this from the former head of the Bundesbank), and the rest of Europe is in even worse shape.
Indeed, Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”
Suffice to say, no EU country has that kind of money lying around.
Moreover, the argument that the ECB or Federal Reserve could stop this from happening is misguided. True, the Central Banks have managed to prop up the markets for several years now.
So what makes this time different?
Simple: the Crisis coming from Europe will be far, far larger in scope than anything the Fed or Central Banks have dealt with before.
Let me walk through each of these one at a time. We have several facts that we need to remember. They are:
1) The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
2) The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
3) Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)
So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.
And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.
To be clear, the Fed, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. There are already signs that bank runs are in progress in the PIIGS (Spain has lost 18% of deposits this year alone) and now spreading to France.
Thus, the World’s Central Banks cannot possibly hope to contain the coming disaster. They literally have one of two choices:
1) Monetize everything (hyperinflation)
2) Allow the defaults and collapse to happen (mega-deflation)
If they opt for #1, Germany will leave the Euro. End of story. They’ve already experienced Weimar and will not tolerate aggressive monetization.
So even the initial impact of a massive coordinated effort to monetize debt would be rendered moot as the Euro currency would enter a free-fall, forcing the US dollar sharply higher which in turn would trigger a 2008 type event at the minimum.
In simple terms, this time around, when Europe goes down (and it will at some point in the no so distant future) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.
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 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…
Graham Summers
Europe is heading into a full-scale disaster.
You see, the debt problems in Europe are not simply related to Greece. They are SYSTEMIC. The below chart shows the official Debt to GDP ratios for the major players in Europe.
As you can see, even the more “solvent” countries like Germany and France are sporting Debt to GDP ratios of 75% and 84% respectively.
These numbers, while bad, don’t account for unfunded liabilities. And Europe is nothing if not steeped in unfunded liabilities.
Let’s consider Germany. According to Axel Weber, the head of Germany’s Central Bank, Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.
That’s one thing most invetsors don’t know about Europe.
To put the insanity of this into perspective, Weber’s claim is akin to Ben Bernanke going on national TV and saying that the US actually owes more than $30 trillion and that the debt ceiling is in fact a joke.
What’s truly frightening about this is that Weber is most likely being conservative here. Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to 418%.
And of course, Germany has yet to recapitalize its banks.
Indeed, by the German Institute for Economic Research’s OWN admission, German banks need 147 billion Euros’ worth of new capital.
To put this number into perspective TOTAL EQUITY at the top three banks in Germany is less than 100 billion Euros.
And this is GERMANY we’re talking about: the supposed rock-solid balance sheet of Europe. How bad do you think the other, less fiscally conservative EU members are?
Think BAD. As in systemic collapse bad.
Indeed, let’s consider TOTAL debt sitting on Financial Institutions’ balance sheets in Europe. The below chart shows this number for financial institutions in several major EU members relative to their country’s 2010 GDP.
| Country | Financial Institutions’ Gross Debt as a % of GDP |
| Portugal |
65% |
| Italy |
99% |
| Ireland |
664% |
| Greece |
21% |
| Spain |
113% |
| UK |
735% |
| France |
148% |
| Germany |
95% |
| EU as a whole |
148% |
Source: IMF
As you can see, financial institutions in Germany, France, Italy, Spain, the UK, and Ireland are all ticking time bombs.
Indeed, taken as a whole, European financial institutions have more debt than Europe’s ENTIRE GDP.
And this is only the “official” numbers. When you account for off balance sheet liabilities, bank’s are even more indebted than this!
That’s the second thing most investors don’t know about Europe.
Let’s compare the situation there to that in the US banking system.
Taken as a whole, the US banking system is leveraged at 13 to 1. Leverage levels at the TBTFs are much much higher… but when you add them in with the 8,100+ other banks in the US, total US bank leverage is 13 to 1.
The European banking system as a whole is leveraged at nearly twice this at over 26 to 1. That’s the ENTIRE European Banking system leveraged at near Lehman levels (Lehman was 30 to 1 when it collapsed).
To put this into perspective, with a leverage level of 26 to 1, you only need a 4% drop in asset prices to wipe out ALL capital. What are the odds that European bank assets fall 4% in value in the near future as the PIIGS continue to collapse?
And at that point the entire EU banking system collapses.
To summate, 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 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…
Graham Summers
Quite a few articles have been written about the importance of owning Gold and other precious metals as a means of maintaining one’s wealth in the face of rampant money printing by the world’s Central Banks.
Today I’m going to share some ideas on how to actually buy bullion.
As far as precious metals go, you need to:
1) Own actual Bullion
2) Store it yourself (not in a bank)
I do not recommend owning a paper gold-based ETF because frankly the custodial risk is high (that is, there’s no telling if the Gold is even there or who would get it if the ETF is liquidated).
In comparison, physical bullion, stored outside a bank, is literally money in hand. You know where it is and you can find out what it’s worth. Compare that to a Gold ETF in which you’re hoping that the bank actually has the Gold and that it could actually send it to you if you requested (fat chance).
In terms of actual gold coins, there are three coins that comprise the bulk of the bullion market. They are Kruggerands, Canadian Maple Leafs, and American Gold Eagles. I’ve been told to avoid Maple Leafs by both a trader and a bullion dealer as they can easily be scratched which damages the gold and reduces the coin’s value.
In terms of silver, the easiest way to get it is via pre-1965 coins (often termed “junk” silver). You can also get silver one-ounce rounds (coin-like medallions) and 10-ounce bars. Or you can buy Silver Eagles coins.
I cannot tell you which dealer to go with, but look for someone who’s been dealing for years (not a newbie). You should always ask for references from the dealer (former clients you can talk to about their purchases/ experiences).
Some warning signs to avoid are dealers who try to store your bullion. Never, I repeat, never store your bullion with someone else. Always store it yourself. Also, be sure to talk to the dealer for some time and ask him or her numerous questions about the industry, the coins, etc. (feel free to test him or her on the information I’ve provided you with e.g. the three most liquid Gold coins, etc.). If they can answer everything you ask in a knowledgeable fashion, their references check out, and you verify everything they say with a 3rd party, you should be OK.
On that note, we just published a Special Portfolio of unique inflation hedges: investments that will not only maintain their purchasing power but will outperform even Gold and Silver as the Fed and ECB debase their respective fiat currencies.
We’re talking about investments of extraordinary value that 99% of investors are unaware of: asset plays trading at massive discounts to their underlying values. The kind of investments that can show you double-digit returns in a very short period.
This portfolio will be made available only to subscribers of our Private Wealth Advisory newsletter. The last time we opened a similar portfolio, we saw gains of 28%, 41% and 42% in a matter of months. We expect similar returns this time around as well.
To find out more about Private Wealth Advisory and get on board for this Special Inflation Portfolio…
Phoenix Capital Research
For the last year, I’ve steered clear of commenting on the US Presidential election for the simple reason that I wanted us to be closer to the actual date before I went through the process of explaining what’s to come.
The reason for this is that elections by their very nature are conflicting processes. Most people vote based on emotions when we are in fact electing someone to fulfill a role that is economic in nature.
This is evident in the fact that the political hot issues being promoted (abortion, gay marriage, etc.) are in fact peripheral (they directly impact a small minority of the population) while the larger more pressing issues (the US deficit, the debt, the US Dollar, the Fed) receive very little airtime.
I didn’t want to get sucked into this because frankly, there’s no point. The US is facing much bigger issues than whether or not someone wants us to pay for their birth control or whether people of the same gender want to be married.
I apologize if this offends anyone, but this is the truth. Today, the US is running its fourth $1+trillion deficit. Our Deficit to GDP ratio is nearly 10%. Our “official” Total Debt to GDP is well over 100% though when you include the debt hidden in various Government entities and unfunded liabilities we’re well over a Debt to GDP ratio of 300% at this point.
To put these numbers into perspective, Greece had a Deficit to GDP ratio of 12% and a Debt to GDP ratio of 150% when it first entered its sovereign debt crisis. It’s since seen a GDP collapse of 20%: one of the largest economic collapses worldwide in the last 30 years.
Of course, you cannot simply compare economies by just two numbers. The US has many advantages Greece does not, including:
1) The US has never defaulted on its sovereign debt
2) The US has its own Central Bank that can print Dollars (Greece’s Central Bank cannot print Euros)
3) The US is the largest most dynamic economy in the world and the provider of the world’s reserve currency: the US Dollar.
Because of this, the US gets a pass where other countries (Greece, Spain, Ireland, Portugal, Italy and soon France and Germany) do not. However, this will not always be the case. Once the debt implosion finishes in the EU, it will then spread to the UK, China, Japan, and finally the US.
At that point, the US will experience something very similar to what Greece has experienced.
Timing this in advance is virtually impossible. But we get clues as to when it might happen. Last year, the US Federal Reserve monetized over 70% of all debt issuance. The recipe for hyperinflation and a currency collapse has been the same throughout history: the rampant monetization of deficits.
Thus far, we’ve managed to get away with this for the reasons I listed above. However, this will not always be the case. And if the US does not deal with its debt problems now, we’re guaranteed to go the way of the PIIGS, along with an episode of hyperinflation.
That is THE issue for the US, as this situation would affect every man woman and child living in this country.
On that note, if you are not preparing for a US debt collapse , 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 global debt implosion accelerates.
To find out what they are, and take steps to protect your portfolio from the inevitable collapse…
Graham Summers
As I noted previous articles, Spain has essentially three options:
1) Spain goes the “Greek route” of agreeing to austerity measures in exchange for bailouts (which will implode the economy).
2) Prime Minister Rajoy refuses to impose austerity measures and is removed/ replaced by an EU technocrat who is pro-austerity measures (like Italy experienced last year)
3) Spain defaults/ leaves the EU.
Thus far Spanish Prime Minister Rajoy has opted to go for #1. The end result has been riots, protests, and now the threat of Spain as a country breaking up. I’ve long averred that Spain will bring about the break up of the Euro. By the look of things, we’re not far from this.
To whit, as the above article notes, Germany, Holland, and Finland have decided to pull back on the promise of a €100 billion Spanish bank bailout first established in June. These countries are now stating that this bailout should be included as part of the ESM mega-bailout fund’s banking program that could take years to implement.
Spain doesn’t have time for this. As I’ve noted before, Spain is facing a full-scale bank run (Spaniards pulled another €17 billion from Spanish banks in August, bringing the year to date bank run to over 18% of total Spanish bank deposits).
Now add multiple regional bailout requests, as well as 25% total unemployment to the mix and Spain is an absolute disaster. The Spanish Ibex knows it too:
Congratulations Mario Draghi, you promised unlimited bond buying and you bought less than one month’s worth of gains for Spain. If you want proof positive that Central Banks are losing their grip on things, the above chart is it. The moment we take out that trendline again, it’s GAME OVER (what more can the ECB promise?)
Remember, Spain is currently drawing over €400 billion from the ECB.
Let’s put this number in perspective… in June before Spain requested a €100 billion bailout, the country was drawing only €300 billion from the ECB.
Since that time and now, the ECB has promised to provide unlimited bond buying… and even Germany has indicated it would be open to some sort of a Spanish bailout…
And yet, Spain is now borrowing even MORE than it was in June.
This is not progress in any way… if anything it indicates that things are worsening in the EU’s financial system at a staggering pace. The powers that be are keeping things calm until after the election… at which time there will be absolute hell to pay.
“So what?” many investors will ask, “Spain is nothing in the grand scheme of things.”
Wrong.
Spain’s sovereign bond market is $2.1 trillion in size. And Spanish bonds are used as the collateral for hundreds of trillions of Euros worth of derivative and credit trades.
… the global derivative market is over $700 TRILLION in size. And we know that the US only accounts for about $228 trillion of this.
The EU banking system is roughly $46 trillion in size. Total EU sovereign debt outstanding is $13.7 trillion. Assuming that EU derivatives are in the ballpark of $300 trillion or so (a safe assumption), this means that EU derivatives exposure is likely:
By now I trust you are beginning to understand why EU politicians and the ECB are terrified of an unorganized EU sovereign default: doing this would result in a significant portion of the collateral for over $300 trillion in trades (remember, I’m only assessing derivatives here) vanishing.
I simply cannot stress this last point enough so I am going to say it again in different terms: EU bonds, including the totally garbage PIIGS’ debt as well as the soon to be garbage debt from France and others are the COLLATERAL for $300+ trillion in trades.
What happens when this collateral is found to be worth much less or potentially even worthless…?
Those hundreds of trillions of Euros worth of trades blow up, there’s nothing backing them, and the banks that made them implode taking everyone’s money with them (think of an MF Global type event across the board for ALL MAJOR EU Banks).
At that point the entire EU banking system collapses.
To summate, 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 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…
Graham Summers
While the media world is abuzz with last night’s Presidential debate, I’d like to cut through the noise and present you with two truly staggering facts that need to be kept in mind as the backdrop for the US Presidential Election
Fact #1: EU leaders have stated point blank that they were asked to keep things quiet until after the election.
Regardless of your party affiliation, social views or the like, we have to ask ourselves “what was promised in return?”
If you’ve been reading me for some time, you know by now that the EU is in massive trouble. Spain is currently drawing over €400 billion from the ECB.
Let’s put this number in perspective… in June before Spain requested a €100 billion bailout, the country was drawing only €300 billion from the ECB.
Since that time and now, the ECB has promised to provide unlimited bond buying… and even Germany has indicated it would be open to some sort of a Spanish bailout…
And yet, Spain is now borrowing even MORE than it was in June.
This is not progress in any way… if anything it indicates that things are worsening in the EU’s financial system at a staggering pace. The powers that be are keeping things calm until after the election… at which time there will be absolute hell to pay.
And we Americans are going to be on the hook in one form or another. Something was promised in exchange for the EU keeping things quiet. And we won’t find out what it is until after November 6
Fact #2: China is facing a severe downturn if not outright collapse.
As I’ve stated many times before, the China economic “miracle” is in fact one colossal Government funded fraud. While the media attempts to spin China as still growing, executives over there have stated that in fact things are far worse than is publicly known.
Many economists expect the Chinese government to announce Thursday that economic growth in the third quarter was barely short of the official target of 7.5 percent. But Chinese business executives said that the reality was worse for many companies selling in the domestic market, leaving considerable room for a rebound.
“All industries are going down, but why aren’t the official statistics going down?” asked Bob Wang, the sales manager of Kralle Tools, a manufacturer in Wenzhou, an eastern city, that makes circular saw blades for lumber mills.
He said he believed that government officials had been underestimating the extent of China’s slowdown to avoid losing face.
So… expect the news out of China to get worse and worse once the election is over. How would the world react to news that the “miracle” which supposedly pulled the globe out of recession is in fact collapsing?
Not well.
Europe and China combined account for 34% of the world’s GDP. Throw in the US which has re-entered a recession and 55% of the globe’s GDP is in contraction.
And everyone is waiting on November 6 to see how this will pan out.
For that reason, I’m putting together a One Time Special Report, detailing exactly what a second term for Obama or a Romney Presidency would mean for the US economy, the US Fed, and ultimately the markets.
Not only that, but I’m outlining what investments would perform best under each candidate based on their policies and plans.
All told we’re talking about over 20-pages of intense, hard hitting research to make sure you’ve got all your bases covered going forward.
We’re only releasing 100 copies of this report (a $500 value) to the general public as part of a special offer for Private Wealth Advisory.
So if you sign up for Private Wealth Advisory now, you can reserve one of these 100 copies. If you don’t… and we sell out… then this report will no longer be available.
Already the reservations have been pouring in (not surprising given how important this is). Indeed, I fully expect we’ll sell out before the end of the week.
Ask yourself… “Is my portfolio and my wealth prepared for what may come after November 6?”
To reserve one of the remaining copies of Special Presidential Report… and take out a subscription to my Private Wealth Advisory newsletter…
Graham Summers
Chief Market Strategist
Phoenix Capital Research
PS. I almost forgot to mention, every subscription to Private Wealth Advisory features a 30 day trial period.
If at any point during the first 30 days you find Private Wealth Advisory is not for you, simply drop us a line and we’ll issue a full refund, no questions asked.
Your copy of my Special Presidential Report is yours to keep… free of charge.
To take out a Private Wealth Advisory subscription…
We’re introducing a new component to Gains Pains & Capital: politics.
While I’ve stayed out of commenting on the US Presidential elections and politics in general for the most part, at this point so much is riding on public policy globally that we cannot analyze the markets or economy without taking it into account.
This new segment will be located at the bottom of our daily commentary. If you don’t care to read it, please just skip it. But we believe this will bring an added dimension to our work that you’ll find useful.
Now let’s first assess the markets.
We know from various sources that there is a coordinated effort to keep things calm until after the US election. Based on this, we can deduce that QE 3 was due to one of two reasons:
1) Propping the markets up until November… or,
2) Something bad is coming down the pike and the Fed wanted to act preemptively.
It’s really a toss up (or could be a combination of both). There is certainly no lack of major issues that all have negative implications for the markets. Among the more pressing are the threat of a sharp global downturn (China, the EU, and the US are all in recession), armed conflict in the Middle East, and the EU’s ongoing banking and sovereign debt crisis.
In light of this, it’s not surprising that the Fed has opted to get more money into the system. What is surprising however is that it’s turned out to be such a dud.
QE 3 was announced on September 13. Since that time the markets have done a whole lot of nothing. In fact, they are barely up since the QE 3 announcement.
We did see a similar correction for about a month following QE 2 in 2010, however after that stocks hit lift off and didn’t look back:
It’s now been a month since the announcement of QE 3. So, if it’s going to have a similar impact to QE 2 as far as stocks are concerned, the markets need to start roaring higher now.
Alternatively, we could indeed have reached the end game for Fed intervention: a time in which the one positive aspect of QE (namely stocks rising) is no longer facilitated by more buying.
If that is the case, then the markets are in big trouble because the negative consequence of QE (higher cost of living) certainly isn’t being held in check, no matter what the Fed claims
So, the multi-trillion Dollar question is:
1) Has the Fed overdone it? Has it finally used up its toolbox to the point that even an open-ended program has little effect on the markets?
Once the Fed decided to backstop the system, there was always the threat of this occurring. You cannot have the capital markets based on moral hazard/ intervention. It not only confounds the very purpose of the markets (aligning capital with opportunity), but it leads to greater and greater dependence on the Fed’s intervention. And at some point eventually the markets no longer respond to the juice.
Can the Fed hold things together until November? I cannot say. But unless the markets start rallying hard soon, then the Fed’s in big trouble.
Now for the politics.
The outcome of this Presidential election will be of tremendous import for both the markets and the economy. During the first four years of its Presidency, the Obama administration has relied heavily on Bernanke’s Fed to hold the system together (remember, it was Obama who re-appointed Ben Bernanke, paving the way for QE lite, QE 2, Operation Twist, etc).
As a result of this, the recovery has been anemic to say the least. I can tell you point blank that the latest spat of improved economic data is not authentic or accurate. I won’t waste time with the methodology (that would take multiple pages of numbers) but I can say point blank that employment has not in fact fallen as the headline number indicates.
Aside from this, the cost of living has increased dramatically while Obama was in office. One can point fingers as for why this is, but at the end of the day, the reality is that Obama put Bernanke back in office and has never attempted to keep our Money Printer in Chief in check.
Thus, our economy has become one of Central Planning: an economy in which the primary driver of things is Central Bank intervention.
So if Obama wins again, there will be absolute hell to pay down the road. The recipe for hyperinflation has always been the same: Government monetization of a massive deficit. The US has run $1 trillion+ deficits for four years now.
Today, the Fed accounts for over 70% of all US Debt purchases. The only reason we’ve been able to get away from this is that the US has not totally lost credibility in the bond markets (yet).
However, to assume that Treasuries will always have a bid is a very dangerous assumption. If we continue down this same path of monetizing the US’s deficit via Fed money printing then at some point we will lose credibility in the markets. At that point the US Dollar will collapse and hyperinflation will hit.
There is no indication that the Obama administration has even considered this eventuality. Indeed, I have not heard anyone on the left refer to Bernanke or the poison of his policies at any point in the last few months.
On that note, I’m currently preparing a Special One Time Report devoted to outlining what will happen to both the markets and the economy depending on who wins this election.
In it I will outline the major developments that will occur in terms of monetary policy, the US economy, and the stock market depending on who wins on November 6. I’ll also outline which investments will perform best in a Romney Presidency and which investments will perform best if Obama wins again.
This Report will be given to all of my Private Wealth Advisory subscribers free of charge. It will go live tomorrow after the market’s close. If you’d like to reserve a copy, all you need to do is take out a subscription to Private Wealth Advisory. It’ll then be delivered to your inbox as soon as it’s ready.
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Best Regards,
Graham Summers
The markets roared from June to September, ever Fed mouthpiece Jon Hilsenrath of the WSJ penned an article calling for more QE in June. Fast-forward to mid-September and the Fed did indeed announce QE3, a plan that will see the Fed monetize $40 billion worth of Mortgage Backed Securities in addition to its plans to Twist $45 billion worth of Treasuries per month: a total monetization scheme of $85 billion.
However, since that time, the Fed’s balance sheet has increased just $3 billion.
Now, it takes several weeks for MBS transactions to settle, so the Fed will announce its MBS purchases since QE 3 started today at 2PM. But if that number is lower than $37 billion (how much the Fed should have bought in the last four weeks) then the Fed lied about QE 3.
In addition to this development, I want to draw your attention to the fact that the Fed balance sheet is DOWN $50 billion year over year. This confirms that the Fed has in fact been engaging in mostly verbal intervention over the last year rather than actual monetary intervention.
The implications of this are of major import.
For one thing, it indicates that the market rally on hopes of more Fed juice is in fact based on a myth. The primary driver of all stock moves has been based on hopes of more liquidity from the Fed and other Central Banks. But the Fed’s balance sheet indicates that this hope is not based on fact. That does not bode well for the bulls.
A second implication concerns the multi-trillion Dollar question: whether the Fed has in fact used up its gunpowder with all of its monetary schemes. After all, the market is roughly break-even since the Fed announced QE 3. Could it be that the market is no longer reacting to Fed action?
If that is the case, then the Bernanke put is over.
These are items to be watching for. We’ll find out the details of the Fed’s actions in an hour or so. But the tide may in fact be turning regarding the success of the Fed’s actions in pushing stocks higher.
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Graham Summers
