Tuesday, June 01, 2010

RED ALERT: Dow implosion IMMINENT!

Received the following email alert from www.moneyandmarkets.com today, but the link has not yet posted to their site (Note: these folks have a great track record).

From Mike Larson:

This is no time for mincing words or pulling punches. In this special red alert, I show you why the great global debt disaster is about to trigger a U.S. stock market implosion.

I show you three debt crisis warnings I’ve just received, telling me that global debt crisis is ALREADY beginning to impact our markets ...

I explain how Bank of America, Citibank, SunTrust and other major U.S. banks could be among the most vulnerable ...

And I show you how you could turn this impending disaster into a veritable profit bonanza.

I want stress from the outset, however, that this is more than a mere forecast. It’s a solemn warning: The U.S. stock market is showing the kind of extreme volatility and severe strains that typically precede major implosions. There is very little time left to get your money to safety. The collapse could come at literally any moment now.

If you ignore this warning, you do so at your own peril. The price for allowing temporary rallies to lull you into a false sense of security could be sudden and could result in massive losses.

The red flashing lights are everywhere. Just three short weeks ago, an initial bout of panic selling reached such a feverish pitch, it set off some of the market’s automatic “circuit breakers” that shut down trading in key stocks. But instead of breaking the market’s decline, the crash merely accelerated, driving the Dow down 1,000 points in a matter of minutes. That fateful day is now called the “Flash Crash.” But make no mistake: It is NOT a flash in the pan. Indeed ...

The crisis that triggered the Flash Crash — the European debt disaster — is just beginning.

Why? The reason is obvious: The European debt crisis has investors more nervous than a long-tailed cat in a roomful of rocking chairs. And it is now spreading ...

* Spain is on the brink right now: If you thought the debt crisis in Greece was bad, wait till you see what’s coming next! The New York Times reports that “the focus of Europe’s problem is rapidly shifting from Greece to Spain, one of the world’s largest economies.”

In fact, Spanish authorities have just seized a major bank there and forced the merger of four others in trouble. Even more Spanish bank failures are on the way as a result of Spain’s own real estate meltdown.

How much could this hurt our markets? Consider the facts:

Until now, yes, Greece was the great nemesis that caused nearly all of the panic. But Greece has only $236 billion in external debts. Spain has $1.1 trillion, or FIVE times more.

Greece owes money almost entirely to European banks, impacting U.S. banks only INDIRECTLY. Spain owes a big chunk of its debts to U.S. banks, impacting them DIRECTLY.

* European “Blacklist” growing rapidly: Portugal, Italy, and Ireland are so close on the heels of Greece and Spain, they are already on the Blacklist of virtually every lender and investor in the world.

These countries can’t borrow money for their huge spending programs. They can’t even roll over their old debts coming due without paying exorbitant interest rates. They have little choice but to slash their government spending — all in a last-ditch attempt to reassure their lenders. Italy proposes to lop off $31 billion in spending. Spain is contemplating the deepest budget cuts in three decades. But that will not be nearly enough to reassure lenders ... and yet it will gut their economies even more. Result: Rising unemployment, slumping corporate profits and still GREATER danger of debt defaults.

* Like several Lehmans all failing at the same time: When Lehman Brothers went under 20 months ago, it instantly froze up global markets, shut down short-term lending, sent the economy into a nosedive, and helped drive the Dow down nearly 5,000 points.

But by any measure, a default by a country like Spain would be far bigger than that of any single corporation, with the potential to wreck even greater havoc in financial markets.

And right now, we already have three debt crisis warning signs, each flashing red ...

Debt crisis warning #1

The single most important interest rate in the entire world is now on the rise!
I’m talking about the London Interbank Offered Rate — LIBOR. This is the rate that’s behind virtually every short-term loan in the United States.

When LIBOR goes up, it promptly drives up the rates in the multi-trillion-dollar market for adjustable-rate mortgages, the $7.2 trillion market for corporate loans — and more all right here in the U.S. And right now, that’s precisely what LIBOR is doing — GOING UP!

That alone can be a shock to the global economy. But what is especially shocking is the fact that there’s virtually nothing the Federal Reserve or even the European Central Bank (ECB) can do about it.

LIBOR is an interest rate that’s determined by the supply and demand for money in the global market. The Fed and the ECB have never been able to control it — and probably never will. And yet, as I said, LIBOR impacts the rates on trillions of dollars of mortgages and other loans right here in the United States.

This has earth-shattering implications. It not only means the global debt crisis is heating up. It also means that the Fed and central banks around the world are losing their power to STOP the global debt crisis from getting a lot worse!

Debt crisis warning #2

The debt crisis IS already striking our shores! How do we know? Because one of the world’s most important measure of the debt crisis is already surging! (It’s the two-year swap spread — essentially reflecting what banks charge for managing the risk on two-year loans over and above equivalent Treasury yields.)

Last year, when Washington spent trillions of dollars to rescue nearly every major U.S. bank in trouble, this crisis indicator fell sharply, signaling — at least temporarily — that the worst of the crisis had passed.

At its low, the two-year swap spread fell to a meager 9.6 points just this past March. Now it has EXPLODED to as much as 64 basis points — almost a seven-fold increase.

But now, it’s surging again, up SEVEN-FOLD from its lows. The clear message: A new, potentially BIGGER debt crisis is in the offing.

Debt crisis warning #3

The cost of insuring against big corporate defaults has nearly DOUBLED in just the past few weeks! That means investors believe the risk that corporate bonds will default has also nearly doubled! And I am NOT talking about just junk companies that everyone knew were risky to begin with. Heck no! I’m talking about INVESTMENT-grade companies, the ones meriting some of the highest ratings handed out by S&P, Moody’s, or Fitch.

The big question: If even supposedly “safe” corporate BONDS are growing riskier almost by the day ...

Imagine the massive risk investors are taking with STOCKS issued by those same corporations!

These debt crisis warnings tipped us off to the Dow’s 7000-point-plus collapse of 2007-2009 ... Now, they’re warning of an equally massive bloodletting directly ahead!

Yes, that’s right: These are exactly the same indicators that told us that a Great Debt Crisis would soon crush the U.S. stock market beginning back in late 2007.

They are the tools we used to warn our Safe Money subscribers of the last big market bust well ahead of time.

Now, they are telling us that we are living on borrowed time, with an equally — or more — painful stock market implosion just ahead.

Much more available here when it's posted: www.moneyandmarkets.com


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Jb said...

Randy; thanks for sharing. This is what I needed to get me moving and take the next step.

For more on where things are headed in Europe, you might want to watch the Hugh Hendry interview on YouTube "Newsnight 26 May Hugh Hendry 'I would recommend you panic.' " I found this through The Decline of the Empire blog.

Ellen said...

These indicators have improved in the last two weeks though, haven't they?