U.S. stocks are now getting hammered. Commodities are imploding. Bank stocks are falling worldwide, and some markets in Europe are at multi-year … and even MULTI -DECADE lows!

What’s most surprising about the breakdown of Europe is not how swiftly it’s happening, but how complacently US investors and others are responding …

This is what happens when you only
paper over a problem, rather than cure it!

How can this be happening? Didn’t central bankers print trillions of yen, euros, pounds, and dollars in the past couple of years to prevent and “cure” these problems? Weren’t we told repeatedly by both European and U.S. policymakers that the problems in the debt markets were contained?

Yeah, we were.

But hopefully, you’ve learned your lesson from the U.S. mortgage debacle. Some policymakers will outright lie to keep you from selling stocks, bonds, or otherwise taking steps to protect yourself from the fallout of a serious debt crisis. Others are just woefully ignorant of the severity of the underlying problems.

Think I’m off base?

Then look at what former U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke did during the subprime meltdown! They gave speech after speech saying the problem was “contained” and that it wouldn’t have a major impact on the U.S. economy. But you don’t need me to tell you those predictions weren’t just off by a small degree.

They were 100% dead wrong!!

Now we’re getting the same song and dance from Europe. The ESM. EFSF. LTRO. We’ve been told that all of these whiz-bang money printing and bailout programs would prevent a crisis, and that the crisis itself really isn’t that bad.

But try telling that to a Greek investor, who has now lost every single penny of gains he racked up in the last TWENTY YEARS! Here’s the chart of the Athens Stock Exchange General Index. You can see it’s trading around 610, a level last seen in November 1992.

It’s not just the Greek exchange getting hammered though. Spain’s main index is now at its lowest level since March 2009, while markets across Europe are slumping fast.

This just goes to show that when you paper over a crisis, rather than try to solve it directly, you might be able to gain a week, a month, or even a quarter or two of calm. But ultimately, your efforts will prove futile if you don’t get rid of the underlying problems!

 

Until next time, good trading

Erik