I don’t like being the bearer of bad news, especially on New Year’s Eve. But I have an obligation to you that surpasses everything. An obligation to alert you when I think a financial event is so powerful and black swan like — that it could wipe out a good deal of your net worth.
I am not talking about the stock market right now, the U.S. or any other countries’. Other than a short-term pullback, it’s on very firm footing, heading toward my targets of at least 32,000 and probably higher to 45,000.
The chief reason: Capital flows and safety.
But if you have any money in Italy — or the European Union and the euro — and you have not heeded my past warnings and have gotten killed on the euro — it’s time to fasten your seatbelts.
Italy Will Go Down the Tubes in The First Half Of 2017.
Here’s the problem:
FIRST, Italy’s banking crisis centers mostly on the fate of Banca Monte dei Paschi di Siena (MPS). The bank shed 28 billion euros ($29.6 billion) in non-performing loans (NPLs) in 2016 which accounted for 36% of the bank’s loan portfolio.
That is the highest proportion of NPLs of any bank in Italy. As a result, investors and depositors began withdrawing their money, compounding the bank’s financial crisis by creating a confidence and liquidity problem. Last week, MPS announced that its remaining 11 billion euros in capital liquidity would only last until April.
But already, MPS failed to meet its Dec. 22 deadline to raise another 5 billion euros of capital.
The bank’s efforts to privately solve its financial problems by raising additional rescue funds have also failed, leaving the Italian government as the bank’s only remaining savior.
With the private sector and outside financial institutions reluctant to help, MPS formally requested aid from the Italian government. On Dec. 23, the Italian Cabinet announced that the bank would be rescued with a 20-billion-euro fund approved by Parliament earlier in the week.
Sounds good, right? But is the 20 billion euros really enough? No, it is not.
Goldman Sachs estimates MPS needs at least 38 billion euros while the London Capital Group estimates it needs as much as 52 billion euro.
SECOND, where will all that money come from to save the bank?
Not from Germany. As the previous bail-out force for many banks all over the EU, Germany now has its own problems.
Germany, Europe’s largest economy, grew by only 0.2% between July and September, half the 0.4% rate seen in the previous three months.
This was much slower than economists had expected and well below the 0.7% rate recorded in the first quarter.
A plunge from 0.7% in January of this year to 0.2% now is a huge drop.
Q4 looks a tad better, but there is no question Germany is sliding. Add in the bail-ins, the reluctance to bail-out Italian banks, the refugee crisis all over Europe, Italy’s high unemployment (adults, 11.4% as of latest data, April 2016; youth unemployment an amazing 38.3% as of August 2016,).
Germany’s exports are down over 2% for the year.
Bottom line: Germany cannot bail out Italy, nor can the International Monetary Fund (IMF). Italy will go down the tubes in the first half of 2017.
- After a mild pullback in the dollar, another strong rally in the greenback against the euro with the euro likely falling below 1 to the dollar by the end of March.
- An Italian stock market crash.
- Worst of all an Italian sovereign bond market collapse.
ACTION TO TAKE:
- Buy inverse ETFs on the euro, at the right time.
- Buy inverse ETFs on Italian stocks or indices, at the right time.
- Buy ETFs on long U.S. dollar positions, at the right time.
What is the right time? It’s dictated by my proprietary Artificial Intelligence models and Neural Net, the most accurate timing program I’ve ever developed.
Best wishes and Happy New Year …
Stay safe and I’ll talk to you soon …