PrudentSquirrel.com – Anyone following along on the world debt crisis can see everybody is broke. And the speculators are betting on who goes down first then second and so on. That is a TON of money betting on more financial chaos destabilizing markets. The Central banks have done everything they can to combat it and they are falling behind now. Its about over, this several year hiatus from the financial crashes of 2008 and 2007.
I cannot imagine the people at CNBC going on air live day after day tracking this chaos.
Gold and oil are steady
The only market which is showing some rationality is oil and gold. Gold especially. Every other market is infected with hundreds of billions of carry trade money. So – no logic, only speculation and big swings. Even silver is getting jacked around because it’s so speculative (always has been – you might want to shift some silver into gold as gold is not so wacky).
But following along on markets, everything is speculation now, and has leverage. And the Credit Default swaps market (bets on credit and bonds of all types) is rampant. They are betting on who will go bankrupt first, and this is over entire countries now! They are betting on the end of the world! Every time the CDS market panics, another $hundred billion bailout is voted in.
Remember the flash crash? Did anyone mention that the next day the first huge multihundred billion Euro bailout was voted in that weekend by the EU. They were given a huge threat. That flash crash was not an accident. Did u hear anyone being investigated? Have you heard of ANY bankers other than like two getting jailed for all the losses around the world in massive fraud? Nope. They are all walking! They are all bold as hell and they are all connected with organized crime! Yes. Half the bankers are organized crime.
Who is the next carcass?
So everyone with billions to bet is jumping on the sickest carcass, the only end can be a total collapse of each country in turn financially. The weakest ones first. When the Shit hits the Fan, the biggest carcass out there will be the USD and the USA. The only money big enough to withstand these attacks are government treasuries with public money, and this is running out! Try getting the US to do another bailout of $800 billion now with the US budget crisis. That type of effort is history. So where is the money going to come next? Probably from a massive stock crash. And another bank panic. And add a Euro crisis on top. A nice multilevel cake of financial doom.
Euro is right on the edge
We are on the verge of another Euro crisis right now; Greece (whose people are notorious for not paying taxes) is holding a gun to Germany and France’s heads. If each new country in trouble is not bailed out, Credit Default swaps (bets on credit about to go bad) drag down every major bank in civilization except maybe the Namibia bank which only has ten dollars net anyway.
But the other banks in Germany, the US, and France, all will go down if either Greece or Spain crash hard. And they will too. The biggest problem Greece has is they don’t pay taxes and the government is effectively running its entire self on loans from whoever get held up in each installment of the next bailout, and the next and the next…so far a two year long story.
Euro headed for existential crisis
So, Greece WILL go down and the feared international bank crisis will unfold once again. It’s only a matter of time. I would bet the Euro has an existential crisis within two years. So will the USD. We have two years left max. The next solution will be a global money system or at least one for the entire West, and one for the Asians. I would bet ten to one that all the tax deferred savings in the Western countries will be tapped for the last final bailout.You’ll be forced to buy US Treasury bonds. You will see. (People don’t get what tax deferred means. It means that when you take out the money you pay the tax then, not when you earned the money, hence they can just raise the tax rates for those withdrawals, and…to boot, to even get the tax exemption, you will be forced to buy ‘qualifying tax deferred investments’ – you know what that means or do I have to spell it out for you?)
No way out
In other words, Greece and the EU is hostage to this crisis. So is the Euro. Now let’s ask a question, what will be the outcome of this situation? Will the Euro survive another summer and not go under? Such a question of the Euro going down has to send shivers through all Europe.
So who goes first, the Euro or the USD? I bet the Euro. The US has its own problems but we can still borrow a ton of money – so far.
In the latest Fed bailout, Greek CDS holders were bailed out again by the US and other countries. If not Greece would have imploded already. So, the CDS markes get to bet on the demise of Greek bonds, but their losses are guranteed against by the public, or else the entire world bank system collapses! Nice.
We need to think what would happen if Greece did not get bailed out again. Because the day is coming when the next bailout of Greece or especially Spain, is going to fail. Then we get the chickens all around the world coming home to roost. That will be mega bank crisis number 3 (the Bear crisis of 2007 is number 1, the Lehman crisis in 2008 is number 2).
Bear, then Lehman then – Greece
The Greek thing is bad enough that even China was jumping into their debt markets in recent weeks buying the debt because if they didn’t the Euro was crashing. In other words, the entire world is now hooked together in a common fate, a debt spiral that is bankrupting everybody, and the only sources of credit left, frankly the US Fed, is all that stands between our savings and a 4000 point stock crash, to begin with.
If your money is in stocks it’s a sitting duck. There are stocks that I like and but we are waiting for a stock correction at least before we consider buying. That leaves things like gold and gold stocks and cash savings for now.
If the Euro were to crash the USD would continue rallying (we called the USD bottom on April 25) and this would cause pressure to unwind markets because the USD has been the carry trade currency of choice since about 2006. Which means that all that borrowed stock money invested by banks in the stock markets will want to come out. (In the Fed market support operations like QE, the banks borrow money at a half percent and buy stocks, the Fed intended this to support stocks, when the USD rises they have to unwind those trades).
Ultimately, the US credit ratings will get downgraded (noises to that effect already by rating agencies) and US interest rates will rise. Ultimately credit which has kept markets from crashing will disappear, and the USD will face its first existential crisis. In that case we estimate the first shock to the USD would be a 30 pct. haircut in FX markets. That is almost impossible to imagine. This IS coming.
Usually, other central banks will step in to stop the USD from falling. But this time, there is much less money to throw at the problem. The world is on the brink of another bout of financial chaos, only this time it won’t stop with some emergency bailout. And the problems are much bigger now.
The interesting thing is that the USD is rallying, but the reasons are there. The Euro is in so much trouble, I am amazed that it’s even over par with the USD. The only banking system that is working is the US related one. Tell me that is not the case as the Fed bails out foreign banks every week? This is not reported now. The China bank system is a joke and not ready whatsoever for the coming crash there.
A very disturbing trend is stories that China and Russia have divested much of their US Treasury holdings. They did this as the USD rose recently. Perfect timing.
Disclaimer: Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter and alerts, are general market commentary only. They are not intended as specific advice. You should talk to your own investment professionals for specific advice. Information here is deemed reliable but should be verified by you if you think it’s important.