RANTING ANDY – And the charade goes on….but for how long?
Just a week ago, stock markets were plummeting and Precious Metals soaring due to expectations of plunging economic activity and imminent sovereign debt defaults. The Fed had just revealed that the Emperor truly has no clothes, and hope for a positive Euro debt solution (as if there is one) was rapidly dying.
Then something incredible happened.
The Cartel initiated OPERATION PM ANNIHILATION, making a mockery of whatever shred of reality still remained in the gold and silver markets, and stock markets rocketed upwards. Actually, only the WESTERN stock markets surged, quite ironic given that their balance sheets are dramatically worse than their counterparts in the EAST. Even more ironic is the fact that leading the charge were the very EUROPEAN BANKS closest to extinction. Can you say “dead cat bounce?”
The media, via its typical “market action makes commentary” M.O., writes that bank stocks are rising due to “hopes of an expanded EFSF” to bailout out the PIFIGS (PIIGS plus France), and all banks exposed to them. They even cite the below, unsubstantiated article from the Grim Reaper of global finance, CNBC, from no less than its most clueless “reporter”, Steve Liesman (strongly bullish on the American economy for the past five years).
The basis for this HOPE is that last week, Geithner told the ECB they should recklessly print money as the U.S. does. However, I have found JUST ONE ARTICLE identifying a European source that concurs with this line of thought, from Germany’s soon-to-be ex-Prime Minister Angela Merkel.
Merkel gives the same tired banksta plea that Greece must be contained to avoid the domino contagion, just as Hank Paulson threatened Congress that the U.S. financial system would implode unless we bailed out the very corrupt, profligate Wall Street firms that not only created the financial meltdown, but frankly yield little, if ANY, positive contribution to society.
And how has that worked out for us?
To the contrary, nearly everything I have read refutes the possibility of a materially expanded EFSF, much of which emanates from major European financial officials!
Yet the bank stock rally continues, with the new, soon-to-be-disappointing flashpoint being tomorrow’s German Parliamentary vote on whether Germany will support an expansion of the EFSF’s power to enable it to “buy sovereign bonds in the secondary market, boost its lending capacity from €250 billion to €440 billion, and help in a bank re-capitalization if funds are channeled through national governments.
I’d put the odds of ratification at 90%, as politicians always kick the can down the road further if they can, rather than face the music in hopes of a better tomorrow. The article below has the same ring to it as Obama’s partisan speeches prior to the debt ceiling vote last month, pure propaganda with a touch of the aforementioned “Paulson charm” to get his point across.
Still, there is some level of uncertainty in the air, and believe me if this vote is a “NO”, the game ends TOMORROW.
Irrespective, the scope of funds required, essentially all of which would emanate from FRESH MONEY-PRINTING, is infinitesimal compared to the financial hole the EuroZone is in, particularly basket cases such as Greece which can only last as long as the new funds injected into it. In my September 24th RANT, “THE GREATEST PRECIOUS METALS BUYING OPPORTUNITY OF ALL TIME”, I attached a graphic describing the size of European bank exposure to sovereign debt, which was staggering to say the least.
Fortunately, this table has since been upgraded, attached below:
To give an idea of just how large the current bailout potential is, French banks alone have $670 BILLION of exposure to the PIFIGS alone, and closer to $1.7 TRILLION including the remainder of Europe. Not to mention exposure to zombie banks around the world, starting with the most insolvent banking system of all, the United States! Heck, German banks, supposedly the world’s most conservative, have $724 BILLION of exposure to the PIFIGS, and $1.5 TRILLION to Europe as a whole.
The data above relates to the banking systems of just TWO of Europe’s nations, so try and picture the gross size of these entanglements, which would get exponentially worse if any of its links breaks. If Greece were to default, European banks would be on the hook for up to $125 BILLION of write-offs, as well as other OFF BALANCE SHEET liabilities such as the billions of credit default swaps underwritten by banks and insurers (AIG, anyone?). However, FRANCE has the most exposure to Greece, so its banks could have up to $56 BILLION of write-offs (excluding liabilities), in turn exposing banks with heavy exposure to France. Banks from the U.K., Germany, and uh oh, the U.S., have loans outstanding in France of $746 BILLION, so you see where I’m going with this….
Sure, the Euro Zone could announce a $2 TRILLION EFSF increase, which STILL is well below the amount required to “cover” banks for potential PIFIGS losses (and beyond) from a Greek sovereign default. However, this money would be MANUFACTURED OUT OF THIN AIR, as the massively indebted EuroZone, that of the surging credit spreads, does not have $2 TRILLION sitting around to bailout the deadest of its deadbeats. Moreover, might this have an impact on inflation, or should I say HYPERINFLATION expectations?
But it gets even better…
S&P just stated ON SUNDAY that if the EFSF is expanded, it might downgrade the credit ratings of numerous European sovereigns, with a “top Standard & Poor’s official” warning that such actions could have “potential credit implications in different ways, including for leading euro zone countries such as France and Germany.” And to add insult to injury, he also had a specific warning for Germany. Many economists, he said, had initially overestimated Germany’s growth performance for this year, and are finally realizing its fate is “inexorably linked to that of all its neighbors.”
Not too good, huh?
Certainly not news that would catalyze a 10% surge in European bank stocks, much less a gold and silver collapse. But then again, the reason I’ve transformed into RANTING ANDY over the past decade is watching the acceleration of GOVERNMENT MARKET MANIPULATION over the past decade, in EVERYTHING from stocks to bonds to commodities to currencies. As GATA’s Chris Powell succinctly put it a few years back, “there are no more markets, just manipulations”, which is why the only way to PROTECT YOURSELF is to understand this and act accordingly.
Whether TPTB can buy themselves a week, a month, or even a year (I HIGHLY doubt it), I cannot tell you. But I can say, with 100% certainty, that the gold and silver bull market will continue for many, many years to come, likely until they are OFFICIALLY reintroduced into the GLOBAL monetary system by NECESSITY, at DRAMATICALLY higher levels.
Just as in 2000-2010, no asset class – stocks, bonds or commodities – will outperform gold and silver over the next decade, in NOMINAL or REAL terms, with the ONLY assets likely to have a chance being LIFE NECESSITIES such as FOOD.