Dollar Bounces Back, Forget the PIIGS, Europe As a Whole Is Insolvent

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Posted by Mark to Market

on Monday, 25 June 2012 10:49

Europe is heading into a full-scale disaster. Even the Dollar Bounces Back, Pessimism Persists in Europe.

The US dollar is broadly firmer, with the recovery of the yen the only main exception. The key fundamental drivers are the recognition that this week’s EU Summit is unlike to resolve the protracted debt crisis and that the Federal Reserve seems restrained compared with the actions of the ECB and BOE. 


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, former 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.

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 conservativehere. 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
















EU as a whole


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.  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?

These leverage levels alone position Europe for a full-scale banking collapse on par with Lehman Brothers. Again, I’m talking about Europe’s ENTIRE banking system collapsing.

This is not a question of “if,” it is a question of “when.” And it will very likely happen before the end of 2012.

The reason that this is guaranteed to happen before the end of 2012 is that a HUGE percentage of European bank debt needs to be rolled over by the end of 2012.


I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe’s ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks.

On that note I believe we have at most a month or two and possibly even as little as a few weeks to prepare for the next round of the EU Crisis.

With that in mind, I’ve begun positioning subscribers of my Private Wealth Advisory for this very possibility. We’ve already locked in over 30 winning trades this year by finding “out of the way” investments few investors know about and timing our positions to benefit from the various developments in Europe.  When you combine this with our 2011 track record, we’ve had 66 straight winners and not one closed loser since July 2011.

Indeed, we just locked in two gains of 8% and 10% in less than two weeks’ time.

So if you’re looking for the means of profiting from what’s coming, I highly suggest you consider a subscription to Private Wealth AdvisoryI’ve been helping investors navigate risk and profit from the markets for years. I can do the same for you. Indeed, my research has been featured in RollingStone Magazine, The New York Post, CNN Money, the Glenn Beck Show, and more. And my clients include analysts and strategists at many of the largest financial firms in the world.

Indeed, interest is growing to the point that we’re not considering closing the doors on this newsletter and starting a waiting list. So if you’ve been putting off subscribing, you need to get a move on to reserve on of the remaining open slots.

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Best Regards,

Graham Summers
Chief Market Strategist
Phoenix Capital Research



Higher gold, silver and interest rates to result from the euro crisis

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Posted by Arabian Money

on Tuesday, 19 June 2012 06:47

When there is a crisis of confidence in a currency then it is the precious metals that gain. Visit any city in Germany or Austria this summer and there is a gold shop in a prominent location.

They have not quite replaced the banks yet. But the message is there for anybody with eyes to see. It is noticeable too that this is not just a phenomenon in the peripheral eurozone but in its teutonic heart.

Spanish interest rates

Then again you certainly are getting good rates on your money in Spain and Italy these days, let alone Greece. Spanish bond yields have passed the danger point of seven per cent.

This is what happens when debtors become scarred about not getting repaid. Interest rates go up. No matter than the ECB has set official rates at a record low.

You can only wonder how much further this trend will go before it ends. The trend is always the investor’s best friend but so often missed for the surrounding noise.

Can anybody really see a solution in sight to the eurozone sovereign debt crisis? Does one exist? The requirement is for a federal Europe that is still a planner’s dream and even then this is no magic solution.

Besides US observers who think Europe has it all wrong and that they have the debt problem cracked are among the most deluded of our time. The US also has a temporary solution based on continuing to borrow money and that is also coming to the end of the road.

For what is happening in Spain will also hit the US in the future. The central banks can only hold interest rates low as an emergency measure, eventually market forces will take over, crush the bond market and raise interest rates.

Historical precedent

You would almost think this is stating something controversial. It is simple stating the blindingly obvious.

History also tells us that when confidence in paper money fails, that is to say bank notes and bonds, it is to precious metals that the population turns. This process happens very gradually and then there is a crunch, a crash and a reset of valuations.


...more articles at Arabianmoney



A golden idea to save (or doom) the euro

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Posted by Eric Regully via Peter Grandich

on Tuesday, 12 June 2012 00:00

Gold is back in the news, big time, and not just because the price may be on the verge of another upswing or that Peter Munk is turning Barrick, the world’s biggest gold company, into a CEO meat grinder. It’s because Germany, it appears, wants to make gold the effective currency of the euro zone before the region plunges to the bottom of the seas like a concrete U-boat.


  • IMF says Spanish banks need at least $50-billion in aid
  • Stumbling economies have central banks girding for more intervention
  • Greek economy continues to crumble


The weakest euro zone countries are tapped out financially and economically. But a few of them are brimming with gold reserves. Take Italy...

.....read more HERE




Signs of the Time - Currency Stocks Bonds Gold & Commodities

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Posted by Bob Hoye - Institutional Advisors

on Friday, 08 June 2012 12:35

"The European Central Bank has reached the limit of its mandate, especially in the use of non-conventional measures... In the end, these [efforts] are risks for the taxpayers.

"It's like morphine, the LTROs provide relief from the pain, but are not a cure for the illness."

--ECB Governing Council member Jens Weidman, May 25.

We have often thought that interventionism is the opiate of the intellectuals.

"Investors pulled $3.05 billion from junk-bond funds globally in the week ended May 23, the most since August."

--Bloomberg, May 25.

"Home prices drop 2% to post-crisis lows."

--Case Shiller, May 29.

“Consumer Confidence Plunges in May"

--Yahoo! News, May 29.

The Conference Board number for May is 64.9, down from 68.7 in April, which is the biggest hit since October.  The consensus was for 70.  February's 71.6 was the highest in a year.

Note that junk-bond withdrawals and consumer confidence have quickly moved to numbers seen at the culmination of the last crisis--away back last fall.

Does this suggest that current distress is culminating?

Not likely, but it is poised for some relief.

Last year's problems began to be revealed last May and culminated in late September.


The dollar has progressed to new highs for the move, as the sovereign debt crisis resumes.  The short squeeze on the DX, which is one of the features of a post-bubble contraction, continues. We had thought that the action would briefly pause at the 81 level reached in January. It only spent a few days there and with some drama has popped to almost 83.

And this is the story--drama as the world discovers that last year's "stimulus" is not working. Well, the global economy has been rolling over.

And yet, the establishment continues in its fanaticism that intervention will make a normal post-bubble contraction go away. Unfortunately, the rise in the dollar as well as yields in Euroland insist that it is not going away. Chart on Spanish bond yields follows.

However, last week we noted that the daily RSI had reached 77.7, which was a level that could limit the move. This is now at RSI 80 and that ended the last big rally, which was to 88.7 (for the index) in 2010.

This fits with the Euro now registering a daily Downside Capitulation.

Stability in the Euro would make most everyone think that the pressures are over and Ross's model has been reliable in signaling a rally.

This would fit with our outlook for choppy financial markets through the summer.

As instructive as it is, let's call it a mini-crisis that is close to ending with the dollar at a daily RSI of 80. A major crisis, as in 2008, could culminate with a weekly RSI out at the 80 level. Possibly later in the year.


Last week we noted that the CRB was getting as oversold, with an RSI at 22, as at the double bottom last fall. That was at the 281 level and it has dropped to 275 with an RSI at 21. Mainly, this seems to be due to this week's extension of weakness in crude oil and the fresh hit to natural gas. Cotton and sugar have seriously extended their 52-week lows. Cotton has plunged from 115 a year ago to 71 now. Sugar has dropped from 27 to 19.5.

This really confirms that a cyclical bear started from our "Forecaster" signal in 1Q2011.

However, base metal prices (GYX) at 363 have yet to take out last fall's low of 356. At an RSI of just under 30 it is getting oversold enough to limit the move.

The grain’s index (GKX) has dropped to 397 and is testing last December's low of 397. Who cares if it takes out the low, but where are the inflation bulls when you really need them?

It seems that most commodities are beat down enough to expect choppy action through the summer.

Stock Markets

Last week, the S&P got down to an RSI of 23 which could be the momentum low for the move. With this week's pressures the index has slumped to 1311, which we take as testing last week's low of 1292.

This will likely hold and general stock markets could be choppy through the summer. Perhaps another new paradigm is developing - - the "All-One-Chop" model?

Other than that, we are looking for a "Typical" summer. Pundits will describe each rise as a "Typical Summer Rally" and each set back will be a "Typical Summer Doldrum".


Picture 1


  • Gold’s have generally underperformed since the economy and orthodox investments arose out of the crash in mid 2009.
  • Base metal mining stocks outperformed the rise in base metal prices. That ended in 1Q2011.
  • The gold sector is preparing to outperform most every sector—on the planet.

Gold’s relative to S&P

Picture 3


Picture 4


E-MAIL bobhoye@institutionaladvisors.com

WEBSITE: www.institutionaladvisors.com




Merkel Bends on Spain - What’s next for the U.S. Dollar? QE3?

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Posted by Axel Merk - Reuters

on Thursday, 07 June 2012 07:33

Germany finalizing face-saving aid deal for Spain

The dismal U.S. jobs report for May, released last Friday, caused the price of gold to soar as the market appears to be pricing in an ever-greater chance of “QE3” – another round of quantitative easing by the Federal Reserve (Fed). But given that 10-year government debt is already down at 1.5%, the Fed may dive deeper into its toolbox in an effort to jumpstart the economy. Investors may want to consider taking advantage of the recent U.S. dollar rally to diversify out of the greenback ahead of QE3.



o a modern central banker, it may be very simple: if the economy does not steam ahead, sprinkle some money on the problem. The Fed has done its sprinkling; indeed, the Fed has employed what one may consider a fire hose. But after QE1 and QE2, we continue to have lackluster economic growth, unable to substantially boost employment. Never mind that the real problem the global monetary system is facing is that the free market has been taken out of the pricing of risk:

.....read more HERE


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