As I have been writing in these pages; Spain cannot rescue its banks by itself, as the Spanish government is out of money. The credit crisis in Spain is worsening and it the country desperately needs more bailout money from its eurozone peers. Lest we forget, it was only in June when Spain accepted a 100-billion-euro loan from the other eurozone countries.
Spain has come a long way…from initially refusing to accept any eurozone bailout funds to going door to door with its hands out. The Spanish government believed that it could access the credit market and be able avert the credit crisis on its own—that did not work very well.
In order to get out of the mess created by the real estate collapse in 2008, the Spanish government approved the creation of the “bad bank.” Essentially, the bad bank buys all the bad loans, and foreclosed properties from the Spanish banks with the money received from eurozone partners. The estimation was that the bad bank would only last 10 to 15 years while it liquidated the toxic assets. (Source: The Globe and Mail, August 31, 2012.)
Sounds like a great plan right? Well, it is very questionable at very best.
This same bad bank concept was used in Ireland to avert a deeper credit crisis; not surprisingly, this did not work as planned. Ireland’s Asset Management Agency (NAMA) paid 30 billion euros to its banks for assets that were worth 74 billion euros—the banks ended up writing off 44 billion euros—leading to more rescue. (Source: Toronto Star, August 31, 2012.)
There have been five financial sector reforms in Spain alone in the last three years, none of which have helped. The uncertainty is still present in Spain and the eurozone economies are still in trouble.
The eurozone credit crisis has been escalating from one country to another. It began with Ireland, Portugal, and then Greece, followed by Spain. Italy will most likely be next thanks to its rising debt and worsening economic conditions.
What does this mean for us here in the U.S.? It means trouble! Industrialized countries in the West cannot escape the ripple effects of the eurozone credit crisis. Add the slowdown in China into the mix and we are looking at a worldwide economic slowdown.
Where the Market Stands; Where it’s Headed:
Only two full trading days into September for stocks and so far we’re off to a bad start. But where my readers should be doing well is with their gold stocks. Gold bullion has opened this morning at its highest level since March.
I have been driving home this simple message on these pages for the majority of 2012: junior and senior gold-producing stocks are trading at historically low valuations and offer a great opportunity. I stand behind this opinion today.
On the “debt clock” at our sister publication Investment Contrarians’ web site (www.investmentcontrarians.com), I saw that the U.S. national debt surpassed $16.0 trillion yesterday. It’s amazing looking at this clock and seeing how one million in additional national debt is created every few seconds.
A bear market rally in stocks that started in March of 2009 is nearing its end.
What He Said:
“Any way you look at it; the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second, and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in Profit Confidential, August 27, 2007. A dire prediction that came true.