Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15
Inflation, Central Banks, and Business Cycles - 18th Apr 15
Stock Market Correction May be Nearing End - 18th Apr 15
UK Housing Crisis, Immigration, Population Growth, Election Forecast 2015 - Video - 18th Apr 15
Q1 Corporate Earnings Risky for Stocks - 17th Apr 15
US Stock Market Getting Scarier by the Day - 17th Apr 15
Stock Market Watershed Day - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
King Dollar Hurting Stock Market Corporate Earnings! - 17th Apr 15
Production Declines Hide Bigger Crude Oil Storage Issues - 17th Apr 15
Top Three Takeaways From Today’s OPEC Crude Oil Report… and How You Can Profit - 17th Apr 15
How to Profit from Australia's Healthiest Biotech Stocks - 17th Apr 15
What Is Really Driving Gold Price? - 17th Apr 15
Will Ever More Boomers Selling Retirement Assets Change Investment Prices For Decades? - 16th Apr 15
Won't Be Contagion with 'Grexit' Greece Euro-zone Exit - 16th Apr 15
Sharp Decline in USD/CAD and Its Consequences - 16th Apr 15
Blackstone is like Apple, Google, Hermes, Boeing - 16th Apr 15
The Most Dangerous Financial Headline I've Seen Since the 2008 Crisis - 16th Apr 15
Is Legal Tax Avoidance Extinct in the UK? - 16th Apr 15
Why Russia Will Send More Troops to Central Asia - 16th Apr 15
More Thoughts on the Current Crude Oil Market - 16th Apr 15
U.S. Treasury Secretary Warns Greek Exit Will Cause Enormous Disruption and Hardship - 16th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

Draghi Just Pulled Out His Bazooka… How Long Before the Stock Market Crash?

Stock-Markets / Financial Crash Jul 27, 2012 - 07:27 AM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis ArticleYesterday, the markets exploded higher on ECB President Mario Draghi’s comments that the ECB stands by ready to do whatever is needed to hold the EU together

We’ve seen this exact same game plan before in 2008 when Hank Paulson claimed that getting a blank check from Congress to battle the US banking Crisis would be like having a bazooka: the markets would be shocked and awed back into functioning properly.


Setting aside the absurdity of an alleged capitalist claiming that government policy could scare the market into behaving properly, we all know that Paulson’s bazooka turned out to be a peashooter. Indeed, all he got for his efforts (combined with the SEC banning short selling on financial institutions) was about two months of market gains.

The ECB’s Mario Draghi appears to have taken a page straight out of Paulson’s playbook (obviously he didn’t bother paying attention to how this particular play panned out). His comments have the same vagueness and the same illusory sense of control.

With that in mind, I ask all of you to make a note of yesterday’s date, July 27 2012, because it’s going to go down in Europe’s history as the “bazooka moment.”

Once again we have a monetary authority figure (another former Goldman Sachs employee to boot) claiming he can shock and awe the markets into behaving properly. His comments assisted by short-selling bans in Europe, have sent stocks through the roof.

However, I have no doubt that these effects will be even more short-lived than Paulson’s bazooka. The reasons are numerous. Here are a few worth exploring if you’re actually buying into this rally:

1)   Spain requested a €100 billion bailout in June… it then requested €300 billion this month… and Spain’s Prime Minister admitted via text message that the real capital needs are in the ballpark of €500 billion, assuming he knows what he’s talking about and Spanish banks have been honest with him (HIGHLY doubtful).

2)   Greece, without additional intervention, will run out of money by mid-August. The ECB no longer accepts Greece bonds as collateral. The IMF has halted funding to Greece. And Germany’s politicians are pushing Merkel to give Greece the boot. So who is going to stop Greece from defaulting?

3)   Speaking of which, Greece has now seen a 20% contraction in GDP. This is akin to Argentina in 2001 when the entire financial system there imploded. Expect the same to happen in Greece the very minute that the money tap is turned off.

4)   Germany is already on the hook for €1 trillion in backdoor bailouts to the EU and is now on negative watch for Moody’s. Do you think Merkel will let Germany lose its AAA status the year before she’s up for election?

5)   Germany, thanks to its EU interventions, now has a Debt to GDP ratio of 90%: the level at which its own solvency is called into question.

If you think the ECB can contain this mess, you’re wrong. The ECB is out of ammo. How do I know?

1)   The ECB hasn’t bought a single EU Sovereign Bond in 16 weeks.

2)   The ECB blew over €1 trillion via LTRO 1 and LTRO 2 only to find that

  1. The effects lasted less than two months
  2. The markets punished those banks that called on the ECB for aid (these requests were seen as public admissions of insolvency)

3)   If the ECB hits the print button and monetizes, Germany will walk. End of story. The word Weimar is still fresh in the German collective memory.  And the German population is already outraged by their country’s EU interventions, the risk of losing their AAA status, and the fact they’re now heading into a recession.

4)   Angela Merkel has told Draghi and others that there will not be Eurobonds as long as she lives. Unlike Draghi, she’s not bluffing.

5)   And finally, the ECB’s balance sheet is roughly $4 trillion. The EU banking system is $46 trillion. And EU bank derivative exposure is north of $200 trillion. How exactly can the ECB contain this mess?

It can’t. Draghi is pulling a classic Central Banker stunt: verbal intervention. If Draghi could in fact solve this mess, he would have already done so. The EU Crisis started in 2010 after all. And here we are, over two years later, and even Greece, which only comprises 2% of EU GDP, has yet to see its problems solved.

If the ECB cannot solve Greece’s problems, how on earth could it solve those of Spain or the entire EU for that matter?

The answer is obvious: it can’t.

Those investors looking for actionable investment ideas could also consider our Private Wealth Advisory newsletter: a bi-weekly detailed investment advisory service that distills the most important geopolitical, economic, and financial developments in the markets into concise investment strategies for individual investors.

To learn more about Private Wealth Advisory and how it can help you navigate the markets successfully…

Click Here Now!!!

Graham Summers

Chief Market Strategist

Good Investing!

http://gainspainscapital.com

PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2012 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014