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Retreat from stock market, impending european implosion worrying by efvf thbtn
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Retreat from stock market, impending european implosion worrying by EFVF THBTN
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| Article Posted: 12/05/2013 |
| Article Views: 111 |
| Articles Written: 1207 - MORE ARTICLES FROM THIS AUTHOR |
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Retreat from stock market, impending european implosion worrying |
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Business,Business News,Business Opportunities
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The WSJ is wrong or perhaps premature. Investors have not done an aboutface. Not yet. They ve wheeled around a few degrees from theircomfortable bullish trajectory of a few months ago.
But they willhave to keep turning in order to change course by a full 180degrees. Then, watch out below! What could make investors spin further against stocks? Two things: First, Europe could blow up much worse than people expect. The eurozone has been on the brink of disaster for so long, most people thinkit will stay on the brink forever as if there were an invisiblebarrier that keeps them from going over the edge. We are connoisseurs of disaster here at The Daily Reckoning . Not that we like them; we just appreciate them.
They clear away alot of dead wood. And, yes, dead presidents. People invest badly.They spend unwisely. All is well til the disaster hits. Then, thedead presidents disappear.
One thing we ve noticed is that disasters seem to take longer thanyou expect to start and then they move faster than youanticipated. Remember the dot.com blow-up? You could see it comingfor years. Then, when it happened it blew up fast. Poof hundredsof billions in dead presidents gone! So too the collapse of the housing industry particularly those low-docs, cash back, subprime mortgages was visible longbefore it happened. We waited.
We waited. And we waited some more.And then, when the catastrophe began, things happened so fast wecouldn t keep up with them. The breakdown in Europe could happen fast too. I don t know about you, said a hedge fund manager we talked tolast weekend, but if I were in Greece , I d be looking for a way to get my money out of the country.There s a very good chance the Greeks will convert euro depositsto drachma.
They will probably close the banks. The Greeks willprobably riot and burn banks if not bankers. So, what would you do if you were in Spain or Italy ? Wouldn t you be trying to read the handwriting on the wall too?And wouldn t you want to get your money out too? Of course you would. That s why the Swiss are talking aboutimposing negative interest rates, to try to discourage otherEuropeans from exchanging their euros from Swiss francs. You don t have to look very far ahead to see what would happen.Just wait til people start lining up in front of the banks to gettheir money out.
If you were in Athens and you saw people lining up to get their money out of thebanks wouldn t you get in line too? Most people would. And thebanks don t have enough money to honor all those depositors claims. So the banks have to go broke and the whole thing fallsdown hard. According to the news media, everyone is making plans for whenGreece says auf wiedersehen to the euro. But even an orderly exit of Greece from the euro is estimated to cost $1 trillion.
Andthere isn t enough money in all the banks in Euroland to pay for adisorderly exit. Which is one reason we re keeping our Crash Alert flag flying. The other major reason for guarding against a crash is this: allthe world s major economies are approaching recession. Old friend Marc Faber says he expects a global recession either in the last quarter ofthis year or early in 2013.
Asked about the odds, Faber put them at 100%. One hundred percent does not sound like odds to us. It sounds likecertainty. We doubt anything in economics is that sure. But let ssay the odds of a synchronized worldwide recession are only50%.
That still puts a lot of empty space between today s stockprices and a recession-inspired bottom. We wouldn t want to bestanding in that space, lest the market crash down upon our heads. You know, dear reader, that it is futile to make predications,especially about the future, as Yogi Berra would say. But heck, we ll take a guess. The euro zone won tfall apart at least, not completely.
The Germans will give way. Itwon t be pretty. No elegant solution will be found. Instead,an awkward, ugly even grotesque combination of concessions,compromise, and craven corruption will keep the European projecttogether. In fact, it will be more together than ever.
Francois Hollande and Angela Merkel will find a way to preserve the union. Most likely, the Europeanswill learn from the US. They will write a huge check to memberstates to cover or partially cover the debts of the past. Theunion will be responsible for the debts of, say, Greece or Ireland . It will be a scheme vaguely reminiscent of the Brady Bonds, or Alexander Hamilton s takeover of state debt after the American Revolution, with newdebt backed by the EU of extremely long duration (long enough to allow inflation to cutdown the real value of the bonds.) The debts of the future, on theother hand, will be the responsibility of member states (lendersbeware!).
Everyone can save face. Lenders (banks) will get theirmoney (more or less). Borrowers can avoid disorderly defaults andbankruptcy (more or less). And Germany and France can hold onto their beloved European Union (more or less) andstill not be on the hook for Greek behavior going forward.
But as to the second danger that of a global recession and bearmarket investors won t be so lucky. The odds may not be 100%,but they are high enough so that a wise investor will take cover. Beware the disappearance of dead presidents in a crash. Then,beware again: the dead presidents could stay dead for a long, longtime.
Regards, Bill Bonner for The Daily Reckoning. I am a professional writer from Camera Accessories, which contains a great deal of information about electric sauna heaters , abrasive blast cabinet, welcome to visit!
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