Endgame approaching in Europe … and a market collapse looming?
Friday, June 29, 2012
I have a sinking suspicion. A feeling I just can’t shake based on multiple fundamental, technical, and timing indicators. My belief?
The end is near.
No, I’m not talking about some Mayan calendar apocalypse kind of thing. I’m talking about a catastrophic, painful, epic meltdown-type endgame for this European sovereign debt crisis. And boy do I hope you’re ready if I’m right!
Could the markets be this close
to coming totally unglued?
Why am I so worried about this kind of outcome?
Well, for the better part of two years, European fiscal and monetary policymakers have been trying everything they can to achieve the impossible. They’ve tried to hold back a tidal wave of delinquencies, defaults, recessions, banking failures, and more tied to the gargantuan build up of unpayable debts and other obligations continent-wide!
They’ve held summit after summit. They’ve cooked up plan after plan. They’ve conjured up bailout fund after bailout fund. They’ve spent hundreds of billions of euros propping up Greece, Ireland, and Portugal. Now, Spain and even lowly Cyprus are knocking at the door, seeking tens and tens of billions of euros MORE in aid.
Meanwhile, the European Central Bank steered hundreds of billions of euros in cheap money to banks in troubled PIIGS countries. Those banks took the 1 trillion euros in LTRO cash and turned around and bought the bonds of their troubled sovereign overseers.
The world’s oldest bank needs a government handout to plug a massive capital gap uncovered by European regulators.
It worked for a few months. But the stopgap measure to drive down government funding costs has now failed miserably, with borrowing costs at or near fresh, pre-LTRO highs in Italy and Spain. Worse, it left those banks even MORE exposed to massive losses.