Banks are selling off hard today, European banks are down as much as 7%, the Euro is dropping, commodities are dropping. Oil has plunged to $78/barrel and oils shares are hitting 12 month lows.
The world is awakenening to the severity of the European debt crisis — which I am relieved about. The greater the awareness of a problem, the greater the chance we will see a real solution.
China’s growth too is slowing. The world’s economies are all interconnected. Europe is one of China’s largest importers. As Europe slows, China slows. China has been the engine of global growth — if China slows, the world slows, especially the commodites sector.
The EU leaders meet Thursday and Friday for their summit. Investors have endured two years of partial fixes and stopgap measure without real solutions, and expet this week to be more of the same. Either way, a lot is riding on this Summit, and investor expectations are low (article):
- Billionaire investor George Soros said yesterday that failure by leaders at the summit to come up with measures to shore up the weakest countries may be “fatal” for the euro,
- German Chancellor Angela Merkel rejected joint euro-area bonds or bills in a speech today.
- Greek Prime Minister Antonis Samaras is recovering from surgery and won’t attend the summit.
- Central banks are facing the limit of their ability to boost economic growth, the Bank for International Settlements said.
Even more bad news:
- Moody downgraded 15 large US banks on Friday
- Moody’s is apparently getting ready to downgrade Spanish banks to “junk” status.
- Spain has officially asked for a bank bailout
- Open Europe says Spain’s funing need is €547.5bn through mid-2015, which is over half its GDP and a large majority of its debt.
- EU Finance head Juncker says any Spanish bailout will include restructuring plan…meaning some kind of default on its debt. Not surprisingly, Spaish interest rates are soaring again.
There is a lot of pressure on EU leaders to do something. Investors and politicians across the globe are pressuring the EU leaders to find a solution. I cannot say something will come out of this summit, but I do think they will make some decisions and announcements related to fixing the crisis. And within the next 6 months, somthing major will be announced, and it will involve money-printing. Given the high level of pessimism, the markets could rally strongly on such an announcement. Gold will certainly rally on any money-printing announcements.
Your best bet is to stay on the sidelines in cash and buy gold on weakness — like now.