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Two days. Two lousy days. That’s how long the “Bailout Rally” in the euro currency lasted in the wake of last week’s European summit!
We shot up from 1.385 against the dollar to 1.424 … only to give it all back and then some by Tuesday, hitting a low of 1.36 and change.
What about European sovereign bonds? Another disaster! Italy was one of the key countries that the bailout was supposed to help. But 10-year Italian note yields just exploded to more than 6.3 percent, a new euro-era high! Belgian and French bonds also got crushed relative to Germany, a sign that investors are fleeing all but the safest European debt!
And global bank stocks? The group most leveraged to losses on risky bonds? They’re getting crushed too! In fact, the collapse in Europe’s debt markets claimed its first major U.S. victim on Monday — MF Global!
The firm bet heavily on junky European sovereign bonds — and lost! Reportedly, the firm’s CEO, former Goldman Sachs bond trader and New Jersey governor Jon Corzine, believed European debt was too cheap. He believed countries like Italy and Spain would get bailed out … and that those bailouts would actually work.
Oops!
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| A bet on European sovereign bonds pushed this company into bankruptcy. |
The company tumbled into Chapter 11 after racking up a second-quarter loss of $186.6 million, and after credit agencies slashed their ratings on the firm, citing its outsized wagers on European bonds. With assets of $41 billion as of September 30, MF Global will likely go down as the 8th-biggest bankruptcy in U.S. corporate history.
MF Global itself isn’t big enough to ignite a systemic crisis. But naturally, investors are wondering who ELSE will go down because of unknown European exposure. I imagine they’ll sell first and ask questions later, putting even more pressure on financial stocks in the U.S. and abroad.
Global Debt Crisis, Recession
Warnings STILL Flashing Red!
Let me tell you, I monitor all kinds of indicators, day in and day out. The one unmistakable message coming from all quarters? That the global debt crisis is getting worse, not better, and that we’re on track for a second recession!
Base metals prices. Chinese stock indices. Brazilian bank rates. The exchange rate of the Indian rupee. They all suggest that foreign growth is slowing. Then this week, we learned that China’s benchmark manufacturing index sank to 50.4 in October. That missed even the most bearish economic forecasts, and was the lowest reading since February 2009.
Here in the U.S. the Labor Department reported yesterday morning, that new applications for jobless benefits fell by 9,000 last week to 397,000. But the number of people who received some kind of state or federal benefit in the week ended October 15, jumped by 103,117 to about 6.78 million from the prior week.
New home sales and construction are stuck in neutral. The lowest mortgage rates in history aren’t spurring sales. Manufacturing and services are both slowing, with the ISM Manufacturing index sinking to its second-lowest reading for 2011 last month.
Meanwhile, consumer confidence just hit its lowest level since March 2009. Leading indicators are pointing toward recession. And swap spreads, junk bond spreads, and LIBOR rates are all climbing, indicating that bank stress levels are climbing.
You might be able to spin one aberrant economic report. Or dismiss a single troubling market indicator. But if ALL of them are pointing in the same direction, why would you ignore them? I’m certainly not doing so!
You’ve Been Warned! Please
Don’t Fail to Take Action!
I haven’t minced any words in my critiques of all the European bailout plans, the latest U.S. housing “rescue” plan, and more. As I told you just last week …
“Unfortunately for the bulls, hope is now colliding with reality — and not in a good way! That tells me we’re due for more losses … possibly very soon!”
My prescription for what to do?
“Look at the cold, hard facts and reality on the ground. They suggest we haven’t seen the worst for stocks, despite the recent rally, and that caution remains your best investment bet!”
To get more specific, I would lighten up on my stock exposure here. I would add more inverse ETFs that RISE in value when assets like stocks and junk bonds FALL.
And I would consider getting even more aggressive with your speculative capital — by utilizing specialized investments that can really turbocharge your profit potential in weak markets. Click here to learn how.
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 21 comments }
SP1075 to SP1260, it’s great to be a BULL with stops in place.
Nothing but Parroting back information….the market has already absorbed such info/data…the markets are waaaay ahead of Mike’s thought processes…
Nothing of value…nothing but reporting and re-hashing events that are ancient by market standards…
Americans only need to look to the North for Parlimentary procedures like referendums….big deal…it’s all part of the process….
How many times have other nations looked at the US like it was falling apart, politically, missing the principals of a democratic government…
referendums are just part of the parlimentary process……jeez…..Canadiens know exactly what I’m talking about……hey, Americans!!…ever hear about Quebec wanting to secede from canada and start their own country??……
Referendums happen all the time!!!!!!……any Prime Minister in Canada can tell you that…..it’s like having a beer…now??..there’s just more reporters watching…
jeez…Americans….
I was afraid of this European debt crisis and sold everything to pay debts. Now look at the markets, up and up mostly. Money and Markets will probably be correct at some point, but the financial sector is going to go its own way, follow fundamentals. Most companies are doing well with plenty of cash. Others are going down and being replaced by newer, innovative companies. In other words, normal market action and turnover. U.S. fiscal policy is bad, deficits are high, but these don’t take down markets at present. Yes, M&M/Weiss Research will see their predicted break downs. As they say: a broken clock is eventually right twice a day.
The sky is always falling at Weiss Research. Unfortunately the stock market doesn’t fall with the sky.
Hey…I don’t see any mention about how the DOW did in October?/..Where is Mike’s self=promotion of how their positions did??…
My overview of my portfolio implies stocks had one of their best months in the history of the DOW????…anyone else have a similar overview???…doesn’t seem to jive with the spirit of Mike’s column??…Hmmm…I don’t see mention of that in Mike’s data points???..
Hmmm…
Yes the DOW gained in October. Now it’s at 11921 after having climbed up from 10655. Great. But it was at 12724 on July 21. I could, however, believe that it’s going to follow the current trend higher till the end of the year.
Anyone with an equity portfolio and not hedging with an inverse etf is a fool.
Curious to what Claus Vogt thinks about the EU situation. We haven’t heard anything from him for a long time.
Claus went broke selling all his long positions and buying short ETF’s
We haven’t heard from Claus because Weiss is hemorraghing subscribers and can no longer afford overseas analysts of the caliber of Claus.
On a separate note to Frances, you are going to get your comments blocked any moment now. You are telling it like it is and Weiss can take only so much of the truth before he sends his censors on you.
general trend is not really the point. its so volatile, anyone would lose big by timing it wrong especially in hedging + leveraging.
Great column Mike. Don’t listen to any of the haters on this wall. While the DJIA did just have one of its best monthly performances, it is worth reminding your emotional readers that every single top 10 monthly performance in the dow occured during a secular bear market. Anyone who has studied technical analysis knows that a 14% run up in the averages in 3 weeks is NOT healthy bull market behavior, but rather stongly indicative of a secular bear market. Additionally, anyone looking objectively at the macro fundamentals should be able to conlude that major s*** winds are on the way. Recently the stock market has been tracing out very clear elliott wave patterns that are clearly indicative of an imminent massive decline that will likley be worse than what was experienced in 08-09.
Referendums that address sovereign default do not happen all the time, referendums on sovereign debt defualt that occur in conjuction with no confidence votes being cast and a nations prime minister being forced out of office are even rarer. The writing is clearly on the wall for anyone who has eyes to see. Just as mike has pointing out. Anyone going long this market is going to get what they deserve and I won’t feel bad for you. You have been warned.
Anyone who has studied technical analysis should know that a 14 % drop in the averages over 3 weeks IS NOT a healthy Bear market but rather a strong indicator of a secular Bull Market….
can’t have it both ways……..gotz to do better than technical analysis because it cuts both ways….
So??..if we get a drop of 14 % in the averages over the next 3 weeks….is this a healthy Bear market?..or?/..just a blip signaling a con’t massive Bull run to 14,000 ppwered by inflation???.
With my experience and memory on parlimentary govt’s…I look for Bull move once Greece and Italy change power…..
When you are used to referendums, they don’t scare you…very orderly….I’ll leave the history lesson for the youngsters..Love Live Canada!!!….
I guess fundamentals are taking over all that fancy technical stuff…..
http://www.cnbc.com/id/45193137
I guess , Phil, doesn’t have a good memory of when Canada lost it’s AAA rating….referendums abounded regarding their sovereign debt …they didn’t change prme ministers via the referendum but did by general election….
oh..and…canada now has it’s AAA rating back….Moody’s gave it a AAA JUST THIS YEAR….imagine that…with all the sovereign debt issues going on today!!!!!!….S/P gave it back in 2002!!!…2002!!!…..seems Canada weathered the referendums and calamity of the last few years very well..
..and the US will too….
Get ready, Phil, yer about to have your head handed to you…..enjoy living off your principal……
Hey, Mike..forget about Europe for a second..I would like to read more about the apocalyptic date of Nov 23rd???….
Any more insights into that day still being the new armeggedon??
Wow..Europe is really screwing up…all they are doing is following their governmental structures and processes to have an orderly turn over of power….mcuh like i’ve been preaching about….
At least they don’t have to have all those ridiculous “hanging chads”…Boy..who remembers Gore vs Bush??….Yea….that was orderly…but..we stuck to our own structures and processes and came out okay…kinda
Mike needs a lesson in anthropolgy and learn not to be so ethnocentric. He knows nothing of other governmental processes…
I don’t care whether its the Prime Minister or the Custodian being kicked out….we all fall back on structures and processes as guides….the person/title are just widgets…it’s the structures in place that provide stability..
it make look chaotic to the ignorant..
very orderly…..get ready Bears…as I stated yesterday….when the power turns over for Italy and greece….Hmmm…slap on a 600 point run….right through to Dec 4th…
hey, Phil…get a load of this tech analysis…..same data you have ccess to..the time stamp of my last post…600 point run…look at the time stamp of this article..
http://www.cnbc.com/id/45201018
what color is the sky in your tech analysis world???..
I think the Bears need to all get together and sign a petition to increase the capital loss write-off…it’s the only way they’re gonna save money…I’m willing as a taxpayer to subsidize the Bear’s losses…American is the most charitable country in the world…
Oh, no..Oh, no…there’s referendums…referendums….run away, run away…Europe keeps screwing up…I don’t understand parlimentary procedures so run away…Europe is in chaos..run away…
Seems pretty orderly to me….as previously stated….
Mike,
I haven’t bought EUO inverse Euros yet. I’m ready to buy 200 today (can’t afford 600). Why is it dropping instead of rising? If the Euro is in so much trouble shouldn’t this be going up? Some of the other comments here don’t buy the inverse theories that Europe is imploding. So is the Euro doomed or not?
Roz