What I Learned about Europe’s Credit Crisis in Germany

 

Europe is at the heart of the current credit crisis. Developments in Italy, Greece, and the rest of the PIIGS countries are driving the action in virtually every market around the world — from stocks to bonds to currencies.

So the four-day trip I just took to Germany couldn’t have been better timed!

I had the privilege of sharing my views on the global economy and global markets before a couple hundred people from the Munich area and around Germany last Friday. And over the weekend, I spent quite a bit of time talking about the latest European developments with colleagues and average citizens.

What did I learn? What kind of boots-on-the-ground intelligence can I share? Let’s get to it …

Bailouts Wildly Unpopular in the
Country That Has to Finance Them!

Forget the empty promises of politicians, or the happy talk coming out of all these European meetings and pow-wows you hear about. The events since the latest, greatest bailout summit in October prove — beyond a shadow of a doubt — that my warnings were right. There simply is NOT enough money to go around to bail out anyone and everyone in Europe!

That’s especially true for Italy. You have to understand that the country has a HUGE amount of debt outstanding — more than $2.7 trillion. That makes it the third-largest sovereign debt market on the planet behind the U.S. and Japan! Greece. Portugal. Ireland. They’re chump change compared to Italy.

And over the last several days, the dam broke in the Italian bond market! Investors dumped Italian bonds like mad, driving their price sharply lower and the yield on the benchmark 10-year note all the way to 7.47 percent! That’s well above the previous highs set a few months ago. And it’s proof positive that both the ECB’s bond-buying program and the leveraging plan for the European Financial Stability Fund are dismal failures!

The hardworking Germans are angry over the bailouts.

Meanwhile, my interactions in Germany convinced me that many Germans don’t like the bailouts their politicians are pursuing any more than you’d expect. They don’t want to spend hundreds of billions of euros bailing out rich bankers and profligate countries in the euro zone, and they’re unhappy with the euro currency itself.

They don’t think the U.S. is in any better shape, either! They can’t believe that U.S. policymakers are trying to give them financial advice and harangue them into bailing out anyone and everyone when the U.S. can’t even tackle its OWN debt and deficit problems.

As you know, the clock is ticking down to the November 23 deadline for the so-called “Super Committee” to recommend huge new measures to cut the deficit. But our Congressmen and women remain hopelessly deadlocked. Democrats are unwilling to slash entitlement programs like Medicare without tax hikes, while Republicans are unwilling to consider any deal that includes such revenue-raising measures.

That virtually guarantees the Super Committee will be a super-disaster. Heck, Congress is a month into the fiscal 2012 budget year and it hasn’t managed to pass even one of the 12 annual REGULAR appropriations bills that fund the government! What a joke!

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Urgent Warnings Coming from the Bond
Markets! Stocks Set to Tank?

I’m a bond guy at heart. I closely follow both the domestic and foreign debt markets because they’re often “smarter” than the stock market. In other words, a collapse in risky debt securities often serves as a leading indicator for equities. And right now, the message from the bond market is unmistakable: We’re in BIG trouble!

The “bonus babies” on Wall Street don’t want to hear it. They know they only have two months left in the year, so they’re trying to prop up the market so they can get fatter bonus checks. That’s why stocks rose recently despite the collapse in riskier bonds.

But that game is just about up, as far as I’m concerned. I believe stocks are set to tank again, especially if the Super Committee goes down in flames as I expect.

So please, don’t just sit there and let your wealth evaporate. Take profits off the table in stocks. Then for your more aggressive funds, consider going on the offense — buying select investments that RISE in value when stocks FALL.

Until next time,

Mike

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