What about European sovereign bonds? Another disaster! Italy was one of the key countries that the bailout was supposed to help. But 10-year Italian note yields just exploded to more than 6.3 percent, a new euro-era high! Belgian and French bonds also got crushed relative to Germany, a sign that investors are fleeing all but the safest European debt!
And global bank stocks? The group most leveraged to losses on risky bonds? They’re getting crushed too! In fact, the collapse in Europe’s debt markets claimed its first major U.S. victim on Monday — MF Global!
The firm bet heavily on junky European sovereign bonds — and lost! Reportedly, the firm’s CEO, former Goldman Sachs bond trader and New Jersey governor Jon Corzine, believed European debt was too cheap. He believed countries like Italy and Spain would get bailed out … and that those bailouts would actually work.
The company tumbled into Chapter 11 after racking up a second-quarter loss of $186.6 million, and after credit agencies slashed their ratings on the firm, citing its outsized wagers on European bonds. With assets of $41 billion as of September 30, MF Global will likely go down as the 8th-biggest bankruptcy in U.S. corporate history.
MF Global itself isn’t big enough to ignite a systemic crisis. But naturally, investors are wondering who ELSE will go down because of unknown European exposure. I imagine they’ll sell first and ask questions later, putting even more pressure on financial stocks in the U.S. and abroad.
Global Debt Crisis, Recession Warnings STILL Flashing Red!
Let me tell you, I monitor all kinds of indicators, day in and day out. The one unmistakable message coming from all quarters? That the global debt crisis is getting worse, not better, and that we’re on track for a second recession!
Base metals prices. Chinese stock indices. Brazilian bank rates. The exchange rate of the Indian rupee. They all suggest that foreign growth is slowing. Then this week, we learned that China’s benchmark manufacturing index sank to 50.4 in October. That missed even the most bearish economic forecasts, and was the lowest reading since February 2009.
Here in the U.S. the Labor Department reported yesterday morning, that new applications for jobless benefits fell by 9,000 last week to 397,000. But the number of people who received some kind of state or federal benefit in the week ended October 15, jumped by 103,117 to about 6.78 million from the prior week.
New home sales and construction are stuck in neutral. The lowest mortgage rates in history aren’t spurring sales. Manufacturing and services are both slowing, with the ISM Manufacturing index sinking to its second-lowest reading for 2011 last month.
Meanwhile, consumer confidence just hit its lowest level since March 2009. Leading indicators are pointing toward recession. And swap spreads, junk bond spreads, and LIBOR rates are all climbing, indicating that bank stress levels are climbing.
You might be able to spin one aberrant economic report. Or dismiss a single troubling market indicator. But if ALL of them are pointing in the same direction, why would you ignore them? I’m certainly not doing so!
You’ve Been Warned! Please Don’t Fail to Take Action!
I haven’t minced any words in my critiques of all the European bailout plans, the latest U.S. housing “rescue” plan, and more. As I told you just last week …
“Unfortunately for the bulls, hope is now colliding with reality — and not in a good way! That tells me we’re due for more losses … possibly very soon!”
My prescription for what to do?
“Look at the cold, hard facts and reality on the ground. They suggest we haven’t seen the worst for stocks, despite the recent rally, and that caution remains your best investment bet!”
To get more specific, I would lighten up on my stock exposure here. I would add more inverse ETFs that RISE in value when assets like stocks and junk bonds FALL.
And I would consider getting even more aggressive with your speculative capital — by utilizing specialized investments that can really turbocharge your profit potential in weak markets. Click here to learn how.
Related Tickers: Direxion Daily Small Cap Bear 3X Shares ETF (NYSEARCA:TZA), Direxion Daily Small Cap Bull 3X Shares (NYSEARCA:TNA), iPath S&P 500 VIX Short-Term Futures ETN (TSE:VXX), iShares Barclays 20+ Year Treasury ETF (NYSEARCA:TLT), ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT).
Until next time,
Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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