|
An
underwater earthquake has occurred in Spain and is quite possibly occurring
now in Italy. Killer waves are now headed directly at the central banks and financial
systems throughout the developed world and at Europe in Particular. How long
until they hit and do the financial equivalent of Japan's recent tsunami?
Socialist bureaucrats and progressives on both sides of the Atlantic are
locked in death struggles with Mother Nature. THEY WILL LOSE.
Socialist
public servants and banksters in Brussels and
Washington are DESPERATELY trying to repeal the law of nature: You MUST
produce more than you consume or PERISH. Economic systems which are
predicated upon the consumption of wealth rather than the production of it
are now on their deathbeds. The obscenity of counting consumption as
production, as does Keynesian economics, is exposed
for its fundamental flaw -- it counts wealth consumption and destruction as
wealth production. How absurd.
The
$5 Trillion plus borrowed in the United States since 2008 has been called GDP
(Gross Domestic Product). It is nothing of the sort. It is a call on $5
trillion of wealth created by present and future generations and spent on CONSUMPTION
and welfare for those in government, their bankster,
crony capitalists and their something-for-nothing constituents. Think of what
the GDP numbers would have been had this borrowing not been counted as
production. This is wealth destruction pure and simple, implemented by
RADICAL SOCIALISTS who are in power throughout the developed world. As Norman
Thomas prophesized in 1944, it is now all true:
This
prophecy is NOW OCCURRING as socialism's "MISERY SPREAD WIDELY" is
in full bloom throughout the developed world. Furthermore, the ECONOMIC and
SOCIETAL collapse from socialist policies and UNSOUND money is accelerating!
The
next central chapter of the global financial crisis has now moved from Greece
to Spain, with Italy set to join the Spanish implosion on SHORT notice. As
SOCIALIST public servants and their central bankster
masters DENY the meaning of current events, the message of the MARKETS is
CLEAR: All confidence in sovereign and financial system solvency in
SPAIN is now LOST. The HOT AIR of solvency and semi-normalcy coming
from the ECB and Euro Zone Grandees shall soon be TESTED. Since there is
NOTHING to SUPPORT their VIEWS, REALITY is set to INTRUDE. Bad loans are now
nearing multi-decade highs and the economy is contracting with unemployment
at depression levels:
Source: Thomson Reuters Datastream, Bank of Spain
Youth
unemployment (not shown) is now almost 50%. As this trend has accelerated
since 2008 loans to the private sector have collapsed:
In
Italy and Spain, yields are blowing out (blow outs equal blow ups for
insolvent borrowers) and Spain had a bond auction FAILURE last week as
bidders were absent and the issue was not fully subscribed.
Events
are moving fast; long-term (10-year) interest rates in Spain are now about
6.00% and in Italy they are bumping up to 6% (higher than this illustration
from LAST WEEK). In both cases technical objectives are now active and you
can expect immediate moves higher of almost 75 to 100 basis points. In
today's auctions of short-term Notes both Italy and Spain had blowouts in
yield compared to post-LTRO (ECB long term repo operation in February).
In
a late Friday release, the ECB announced that Spain's banks use of the
discount window DOUBLED in the last reporting period from approximately 150
Billion Euros to over 300. Let's take a look:
 
It
doubled in 1 month illustrating that the Spanish financial system is CUT OFF
from unsecured, overnight funding. OVER 67 BILLION EUROS left the Spanish
banking system in March. And a classic RUN on the SPANISH BANKS is in full
bloom underwritten by the European Central Bank:
Let's
not forget the HUGE debts PILING up in the region, almost doubling since
2008:
Do
you think Spain's economy has had any growth since 2008 while these debts have
mushroomed? NO. Now let's look at TARGET 2 internal CENTRAL BANK balance
sheet flows to Spain and Italy (and from the perspective of Germany):
This
is how much MONEY has flowed from creditor nations to these DEBTORS; good
luck seeing any of it back. Now let's look at the SUCKING sound at the Bundesbank:
As
you can see, GERMANY has UNREALIZED losses of almost $700 Billion because
that money will NEVER be repaid, and these numbers DO NOT include 2012 so the
BAD debt is mushrooming. I just received an update for the chart above; it is
now UP almost another 150 Billion Euro's since the end of 2011. In the Telegraph
today, Ambrose Evans Pritchard reports that the actual number of debts
Germany ultimately GUARANTEES or has lent is OVER $2 Trillion, which is
approximately the size of the German GDP (http://www.telegraph.co.uk/finance/financialc...-rescues.html
).
The
Spanish government is REAPING the CONSEQUENCES of the GREEK bailout as
FOREIGN bondholders GET OUT while the getting is good, aka before the
EUROPEAN Commission, IMF and European Central Bank SCREW them. Take a look at
capital flight in its FULL, GORY GLORY:
Talk
about a REVERSAL of FORTUNE, this is it. This chart DOES not include February
and March, so the picture NOW is far UGLIER. Now let's look at who is picking
up the slack as foreigners EXIT:
Look
closely at the chart on the left, just as bank balance sheets explode with
toxic Spanish sovereign debt, foreigners are either liquidating or not
ROLLING existing holdings. This is only rational, self-preservation as
political promises are demonstrably WORTHLESS. The longer you hold this toxic
trash, whether sovereign or bank debt, the more you will LOSE.
As
the age-old adage goes: Fool me once, shame on you; fool me twice, shame on
me. These are not fools OR speculators they are INVESTORS seeking shelter.
Institutions, the private sector and pensions are saying NO MAS.
So
now the un-payable and inextinguishable debt RESIDES in the financial system
in SPAIN and probably Italy. The Collective Action clauses and the screwing
of private lenders through subordination in the Greek debacle have done their
mischief and the now unsecured creditors are JUMPING ship rather than RELYING
on the worthless promises of European public servants. They KNOW that if they
stick around the authorities will STICK it to them. Look at the CAPITAL
FLEEING (600 Billion Euros and counting) from the PIIGS to the PERCEIVED
safety of the north:
The
LTRO money has now been USED up BUYING the sovereign debt of the Spanish and
Italian governments. Initially the bid from the LTRO drove those markets
higher (they overpaid to buy them), now those
positions are deeply into losses.
As
Moody's gets ready to DOWNGRADE the biggest banks in the Euro Zone by 1 to 3
notches, another round of LOSSES on BANK debt can be counted upon. Since they
levered up to boost the return from the SUPPOSEDLY RISK-free
carry, MARGIN CALLS LOOM for cash-strapped domestic Spanish and Italian BANKS
(government bonds held to maturity are risk free as per central bank and
financial system regulators so they require NO RESERVES against future
losses).
Just
today, credit default swaps place the following odds of bankruptcy in the next
ten years: Spain at 49%, Italy at 45%, France at 26% and Germany at 13%.
These levels are over 100% higher than three years ago. The odds of
Too-BIG-to-fail banks failing are: Bank of America at 33%, Citi at 32%,
Goldman at 34%, Morgan Stanley at 42%, Unicredit at
45%, Nomura at 42%, BNP Paribas at 30%, Deutsche Bank at 25% and UBS at 25%.
To look at these prices you would have to believe we are in the depths of the
crisis rather than on the mend as reported by the main stream media. The
hidden insolvency of the Bundesbank through TARGET
2 loans to the European periphery is OVER 500 Billion Euros, as that LENDING
will NEVER BE REPAID. Add to this all the GUARANTEES they have made for the
various bailouts.
The
IMF is now FAILING in its role of LENDER OF LAST RESORT, established in
Breton Woods I, but last week's meetings cashed them up to almost $1 Trillion
(about 4 or 5 month's worth of can kicking).
Helicopter Ben was explicit last week in his emphasis of FINANCIAL system
stability (US banks are inextricably linked to Europe) in his role as
INFLATION fighter and with his full-employment responsibilities. Remember,
politicians HATE markets because they expose them for the LIARS they are.
Let's look at the most recent Spanish stock action versus the S&P 500,
courtesy of target="_blank" www.dshort.com :
This
is a picture of: 1. Spanish stock market collapse. 2. Spanish economic
collapse. 3. S&P 500 stock market manipulation. 5. A divergence that will
be resolved. 6. All of the above. The answer is 6. The Spanish stock market
is predicting an economic KNOCK OUT as it is firmly below the 2009 bottom
(not shown, it happened today). Long term trend lines going back 15 years
have also fallen, so a SIGNIFICANT TOP is IN PLACE. Depression has arrived
and the stock market is SIGNALING more PAIN to come.
We
are waiting for the ANNOUNCEMENT of the Spanish banking system BAILOUT,
followed closely by a sovereign bailout. The dominoes keep falling and will
continue to until they topple the kings such as GERMANY, the US and the UK,
swallowed up in BLACK holes of INSOLVENCY.
Wolfe Wave
What
is a Wolfe wave? It is a megaphone formation increasing in amplitude. It is a
formation that denotes instability and which is INCREASINGLY UNSTABLE. In
this case, the instability wave BEGAN in August of 1971 when Breton Woods II
SEVERED all the US dollar ties to gold. Since that time, unsound money and
the central bank's ability to print it out of thin air became boundless.
So
now MONEY CREATION is either too hot or too cold, creating huge and
INCREASING oscillations. It denotes the same instability we see in the global
economy and financial systems. Wolf Waves typically happen at TOPS in markets
and in this case the US economy. Whether in physics or markets, Wolfe Waves
are PICTURES of INSTABILITY.
This
Wolf Wave is making another prediction as to the future course of the US
economy and EARNINGS for the S&P 500. The last time we were in this
position it forecast the economic and stock market crash of 2008. Now it is
PEAKING again and is, or is about to, ROLL OVER. Courtesy of target="_blank" www.dshort.com and target="_blank" www.crestmontresearch.com ):
Look
closely as I have drawn in two sets of Wolfe Waves, one is bounded by white
lines and another in red. See how the highs and lows are expanding outside
the original Wolfe Wave pattern? That is SIGNALING additional instability in
the economy and financial system commencing with the CRASH of 2001. In 2001,
Greenspan PRINTED money and dropped rates like the madman he was. The bounces
were equally prodigious, and then in 2009 Bernanke DID the SAME, expanding
the fed's balance sheet by 300%.
This
is signaling that the recovery off of the 2009 lows (where earning actually
approached zero for the S&P 500) have now reached their apogee. Looking
closely at previous highs would suggest a trip back to the lows signaling the
next wave of insolvency rocking the economy and financial system.
I
got this chart back in 2008 and wrote a Tedbits at
that time PREDICTING a crash in earnings and the ECONOMY into the 2008
election. Check out my archives. I am doing so again, now in this commentary.
Three to five quarters from now we will be VISITING the lows in earnings and
the economy. Wolves eat things, this time will be no different; unfortunately
this time it will be eating economic growth. The next wave of INSOLVENCY will
be GREATER than the last two CRASHES (2000-2001, 2008-2009) as the
insolvencies have only GROWN.
What
could possibly SPAWN this radical turn of events?
Economic Murder
How
about a tax increase 518% GREATER than the average (.675% of 1 percent) tax
increase since 1968? This is about to hit the US economy like the BRICK it
is: A wholesale transfer of 3.8% of GDP from the private sector to the public
servants. To put that into monetary perspective that is approximately $525
BILLION in one year. No one dares TALK about this FISCAL SLEDGEHAMMER
BEFORE the ELECTION as BOTH sides of the aisle want the money to SPEND,
SPEND, SPEND. Or should I use the latest weasel
words: INVEST in the FUTURE of LEVIATHAN GOVERNMENT as it attempts to SWALLOW
the remains of the private sector it has not already devoured.
Do
you think this might impact the economy and jobs when it goes into effect?
This is a withering BLOW to CONSUMERS and the PRIVATE sector. Ob@ma and the CORRUPT, PROGRESSIVE, legislative
SUPERMAJORITY of 2009-2010 scheduled these taxes to KICK in after
the 2012 election campaign to FOOL the public about the COSTS of the
stimulus, Ob@m@care and Dodd-Frank; the bills for
which are about to be DUE and PAYABLE.
This
is the recipe that Socialists in the beltway have implemented to DESTROY
growth and the economy ala the Cloward-Piven
strategy so they can implement and seize MORE power as the collapse and CHAOS
unfolds. As Rahm said "A crisis is a terrible thing to waste." So
they are brewing one on top of all the other problems we have.
Both
Ob@macare and Dodd-Frank are 2,200 plus pages of
POLITICAL CORRUPTION basically nationalizing the healthcare and financial
industries. Written by Democratic special interests in backrooms and unread
by those who voted for them (shouldn't this be illegal?). As they are
implemented they are wrapping themselves around the economy like twin pythons
and SQUEEZING the LIFE out of the US economy.
Just
this week the Congressional Budget Office announced that less than 100 of the
approximately 400 new rules for Dodd-Frank have been implemented and they
require 24,000,000 man hours of compliance on the financial sectors. Now take
that times three to complete the rule making. Add in the rush to publish NEW
regulations (82,000 plus pages) BEFORE the end of the year when the Dems MAY
FALL out of power over the bureaucracy and you have a recipe for the MURDER
of the economy and private sector.
Oh
and don't forget the delayed EPA regulations on coal-fired power plants
(which supply almost 50% of the power in the US) which were POSTPONED until
after the election as well, in order to prevent to wholesale closings of
these electric powerhouses and to delay the next leg of spiraling prices in
order to FOOL the public about their future energy costs under the current
administration.
In
a recent Gartman Newsletter target="_blank"(www.thegartmanletter.com ), Dennis
cites historians, Will and Ariel Durant, on the decline of the Roman Empire.
Rome had its socialist interlude under Diocletian. Faced with increasing
poverty and restlessness among the masses, and with the imminent danger of
barbarian invasion, he issued in A.D. 3 an edictum
de pretiis, which denounced monopolists for keeping
goods from the market to raise prices, and set maximum prices and wages for
all important articles and services. Extensive public works were undertaken
to put the unemployed to work, and food was distributed gratis, or at reduced
prices, to the poor.
The government - which already owned most mines, quarries, and salt
deposits - brought nearly all major industries and guilds under detailed
control. "In every large town," we are told, "the state became
a powerful employer, standing head and shoulders above the private
industrialists, who were in any case crushed by taxation." When
businessmen predicted ruin, Diocletian explained that the barbarians were at
the gate, and that individual liberty had to be shelved until collective
liberty could be made secure. The socialism of Diocletian was a war economy,
made possible by fear of foreign attack. Other factors equal, internal
liberty varies inversely with external danger.
The task of controlling men in economic detail proved too much for
Diocletian's expanding, expensive, and corrupt bureaucracy. To support this
officialdom - the army, the courts, public works, and the dole - taxation
rose to such heights that people lost the incentive to work or earn, and an
erosive contest began between lawyers finding devices to evade taxes and
lawyers formulating laws to prevent evasion. Thousands of Romans, to escape
the tax gatherer, fled over the frontiers to seek refuge among the
barbarians. Seeking to check this elusive mobility and to facilitate
regulation and taxation, the government issued decrees binding the peasant to
his field and the worker to his shop until all their debts and taxes had been
paid. In this and other ways medieval serfdom began.
Thank
you, Dennis. History may not repeat but it certainly rhymes. This quote is
where we find ourselves today isn't it? In Europe this is in full bloom, and
in America what hasn't happened will in the near future.
In
closing, SPAIN is DONE! Put a fork in it. We are just waiting for the
announcements. Confidence has been shattered internally and externally. In
the United States profits, stocks and the economy are entering the resumption
of the secular bear period as the recovery off of the March 2009 lows dies a
slow death. Death, er.... Debt Spirals are in
various stages of unfolding in every major developed country in the world.
The
United States faces ENORMOUS and insurmountable OBSTACLES to growth in the
next several months and years, most notably from its own POLITICAL CLASSES
and central planners in Washington and state capitals. Washington REFUSES to
address ANY of the issues. The preservation and growth of GOVERNMENT is the
only policy being implemented. Washington DC and Brussels are driving their
countries and constituents to their own demise and creating modern-day SERFS
of their respective constituents -- supposedly to SAVE them.
As
these things HIT the headlines the PRINTING PRESSES WILL ROLL! Over and over
again, more waves of INSOLVENCY are at hand and will hit over the next 30 to
90 days. This will be a tsunami of FINANCIAL pain. The great default
continues to unfold.
UNACCOUNTABLE
Socialists in developed-world capitals continue to BATTLE their private
sectors, PUSHING them ever deeper into TAX and credit slaves, and PRINTING
MONEY to substitute for the economic and income growth their
SOCIALIST/PROGRESSIVE policies have destroyed. The next episode of INSOLVENCY
has engulfed Spain and has Italy firmly in its sights. The welfare states'
economic model is DEAD, but the fight to prevent their demise will drag us
all down with them. This is a CLASSIC currency and financial system
extinction event as outlined by Von Mises.
(Author's
note, THIS IS NOT GLOOM and DOOM; this has the potential to be the greatest
opportunity in history. While this unfolds, VOLATILITY will explode as
investors seek shelter from public servants' policies and the printing press.
Volatility is opportunity for prepared investors who have
absolute-return alternative investments as part of their portfolio --
investments which have the potential to thrive in up down and sideway market
conditions. You must also learn to restore the functions of money to your
FIAT currency. I am a specialist at this and I use professional managed
futures managers to create custom-tailored portfolio diversification. If you
have an interest, give me a call and I will call you personally target="_blank" CLICK HERE -- target="_blank" http://www.traderview.com/portfolio)
Try
as they might to DENY it, the next round of Quantitative Easing (printing
money, er... IOU's out of thin air) is BAKED in the
CAKE. It's INFLATE or DIE until the ultimate FINANCIAL system failure. They
know it and YOU know it. They will NEVER admit the scale of the problem, NEVER.
With a MINIMUM of $3 Trillion short term (3 to 9 months) required.
Public
servants and central bankers will always deny that more is coming until the
markets POINT a GUN at their heads and they do as you or I would do. They
DUCK, and let the public take the bullet for their poor policies as they
always have. The $800 Million in IMF money is a squirt gun at a FOREST fire
but will serve to kick the can a little further down the road.
The
banksters, public servants and crony capitalists
are psychopaths and sociopaths with NO CONSCIENCE about their actions and the
impact on their constituents. Just like Lenin, Mao and Hitler, today's
demagogues have no hesitation in how many they hurt and destroy as they
pursue their dreams of domination. Millions and millions of people believe
and have been taught they can have and are ENTITLED to something for nothing.
These people (trade unions, crony capitalists, banksters,
public servants, etc.) are the instruments of destruction of the productive
sectors of the developed world. They are locusts and minions of megalomaniacs
with no knowledge or regard for history. So it is repeating as it has
throughout history. Only this time the episode is not regional, it is global,
throughout the developed world, and the tragedy will be equally as LARGE.
Enjoy the recent lull in the action courtesy of the Trillions of Dollars,
Euros and Yen printed in the 4th quarter of 2011 and 1st quarter of 2012. Oh,
did we forget to mention the $2 Trillion debt ceiling extension enacted in
August 2011 RUNS out approximately 30 days BEFORE the election? CHAOS looms.
Mother
Nature will keep applying PAIN until the illusion of SOMETHING-for-nothing is
DESTROYED and until PRIVATE PROPERTY RIGHTS, incentives to produce, save,
invest and behave prudently are all restored. Economic models of the welfare
state and consuming more than you produce and borrowing the rest will be LAID
TO REST and a return to rewarding wealth creation will begin again. Just ask
China.
Theodore “Ty” Andros
|
