Brace for impact and volatile trading, because Europe teeters to the brink, this time for real, according to James Turk.
Turk, the chairman of Goldmoney, told King World News he sees the signs of a rapidly approaching collapse in Europe’s debt markets, and the ramification will rival the collapse of the U.S. banking system in 2008 following the fall of Lehman Brothers. Sign-up for my 100% FREE Alerts!
Initially, what was a tiny Greek problem (2 percent of EU GDP), has moved to the heart of the eurozone through Italy (GDP of 2.1 trillion, or 13 percent of EU GDP), Though not a surprise, the attack on Italian debt this week has sped up the timetable for the needed chain of events to occur for a final resolution to the euro.
As Italian 10-year bonds trade above 7 percent, the line in the sand that Morgan Stanley said is where traders say Italy won’t recover, the crisis has moved definitively to the next step to resolution, one way or the other—monetize debt, break the euro, or allow the system to collapse.
If Italy won’t recover, the euro cannot recover—though “illegal intervention,” according to zerohedge in yesterday’s Italian 1-year bill by new ECB chief and former Goldman Sachs operative Mario Draghi served to grant more time for the euro—again, though not a surprise. But an extended period of Fed-like shenanigans in European debt markets by the ECB is highly unlikely. The Germans would recoil violently at the idea of a re-run to Weimar, taken behind closed doors, of course.
“Clearly the two percent plus drop today by the euro against the U.S. dollar is a warning sign that a major crisis is brewing,” Turk told KWN on Wednesday. “I mentioned before that the Dexia and MF Global collapses are not the Lehman event I’ve been expecting before year end. But the markets are telling us that a major crisis is now brewing. So be prepared for another Lehman type of collapse which will bring the financial structure to its knees.”
Turk’s grave assessment of Europe’s of the situation echoes countless among the media (not counting rumor mill central, The Financial Times of London), where the dialogue between the markets and the endless closed-door meetings of European leaders has been fancied.
French President Sarkozy and German Chancellor Merkel have already released some trial balloons to the effect of a euro breakup, a suggestion floated around by Wall Street and Main St. analysts for months. Reuters served the European leaders their outlet to the markets yesterday regarding the latest solution.
“German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future.”
While the foundation for a breakup of the euro is laid, the toothless apparatchiks of Europe will bark and humiliate Italy until it’s finally released along with the other Club Med fiscal basket cases to a second tier euro, knowing full well what Morgan Stanley had rightfully stated is a “mathematically impossible” future of Italy’s ability to service its public debt.
“The EU and the IMF telling Italy that it must adopt austerity measures is advice that comes about five years too late,” Turk explained. “The Italian government cannot cut enough or fast enough to improve their financial picture. The bottom line is the fallout from Italy is going to get very bad very quickly.”
He added, “ . . the wheels are finally coming off the cart and they [KWN readers] need to be prepared for some volatile and cataclysmic events over the next several weeks.”
Turk suggests holding gold, physical gold, that is, while the banks attempt to seize Italy’s 2,450 tons of the yellow metal.