Why A 2008-Type Scenario Is Now Unavoidable; 2012 Will Be Worse Than 2008 (XLF, UYG, FAS, FAZ, SKF)

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December 19, 2011 2:22pm NYSE:FAS NYSE:FAZ

Martin D. Weiss: If you think 2008 was a bad year,  wait till you see 2012! The world’s largest banks have far less capital, the  world’s largest governments have far less bailout power, and each is pulling  the other into an abyss.

Yet, BOTH bankers AND government officials seem mostly  oblivious to the dire realities, sleepwalking through daily life as if nothing  had changed.

Burying the Truth

Over 100 years ago, novelist Émile Zola put it this  way: “If you silence the truth and bury it underground, it will grow and gather  such explosive power that the day it bursts through it will blow up everything  in its way.”

This is a key reason why economies crumble, markets crash and entire empires wind up in the  junkyard of history.

This is why  investors lose fortunes.

This why lives are  destroyed.

It’s why life-changing opportunities are left by the  wayside.

And it’s why my mission  is to give you a direct, immediate pathway to the truth no matter how lonely  that endeavor may be.

Recent events are  prime examples …

Sovereign debt downgrades: While the world’s Big Three rating agencies —  Standard & Poor’s, Moody’s and Fitch — stubbornly maintained stellar grades  for the world’s largest sovereign nations, our Weiss Ratings was …

* the only rating  agency in the world to challenge them to downgrade long-term U.S. debt (5/10/2010) …

* the first rating  agency to assign a low grade and downgrade the United States (4/28/11, 7/15/11), and …

* the first to  assign low grades and downgrade major European countries (4/28/11, 9/1/11).

Bank collapse warnings: Even as nearly everyone thought the world’s banks were safe and strong, we warned that

* there are still  2,707 banks and 2,584 credit unions in America vulnerable to future financial  woes and even potential failure (4/18/11) …

* Bank of America plus 11 other giant banks are vulnerable to financial disaster (8/29/11, 9/26/11), and …

* major European  megabanks could be among the first to collapse (10/10/11).

European crisis alerts: While nearly every pundit on Earth was singing the  glories of “the European growth revival,” Money  and Markets and Safe Money editor  Mike Larson showed you …

* how the next  European dominoes were going to fall (1/14/11) …

* how the European  authorities were rapidly losing their battle against the debt crisis (5/27/11), and …

* why shocking new failures are possible in the U.S. and overseas (1/31/11).

Commodity market rout: While nearly every pundit on the planet was finally  turning wildly bullish on gold, silver and natural resources, Weiss Research analysts  were among the few that had the courage to buck the crowd by boldly warning of  a temporary — but very dramatic — correction.

In August, Real Wealth and Uncommon Wisdom editor Larry Edelson wrote “silver is vulnerable to  a crash” and “gold can fall back to … $1,359.” He  stressed that “over roughly the next six to nine months, the Western world is at  risk of a mini-2008 type panic. That means most commodities are also vulnerable  to another shakeout.”

In November, Mike Larson warned: “After a  long period of staying bullish on commodities, my outlook has been unabashedly  bearish in the last few months. My reason is fairly straightforward: Government  stimulus spending is drying up, and monetary policymakers can’t push through  aggressive quantitative easing because of political resistance. … That’s a  recipe for falling demand and falling prices.”

And for many months, Weiss Research currency  expert Jack Crooks has been consistently warning of sharp declines in all  currencies tied to commodity prices, especially the Australian dollar.

We cannot predict every trend. Nor can we always  be unanimous in our views. But in each case, not only did our readers have  abundant time to use the advance warnings to escape the dangers … but they  also had many opportunities to profit from them handsomely.

Now, finally, others are beginning to see what we saw many moons ago.

Fitch has warned that a comprehensive  euro-zone deal is now “beyond reach,” placing six euro-zone countries on  short-term downgrade watch.

Fitch has also downgraded Goldman Sachs (NYSE:GS), Bank  of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and five others.

Moody’s has downgraded Belgium by two  notches, warning that soaring borrowing costs are straining the finances of  heavily indebted countries like Belgium.

Standard & Poor’s is now planning  potentially traumatic and devastating ratings downgrades for France and possibly  even Germany.

And in its strongest warning yet, the IMF itself  has warned that the global economy could soon see another Great Depression.

Why a 2008-Type Scenario Is Now Unavoidable!

In 2008, we witnessed a sinking global  economy, sinking financial markets and a series of debt collapses.

Plus, in the months that followed, we saw solid investments selling at a fraction of their true value, opening up some of the greatest buying opportunities of our era.

Among the main causes of the next big decline:  The vicious cycle between sinking banks and sinking sovereign countries.

Why? Because the world’s largest banks are up  to their eyeballs in the bonds of failing countries. But, at the same time, the  economies of those same countries are being dragged down by their failing  banks.

Ironically, in response, all they can seem to  do is point fingers.

* The banks accuse their governments of  fiscal follies, demanding major budget cutbacks, while, at the same time …

* The governments accuse their banks of  reckless risks, demanding they build more capital.

Fundamentally speaking, BOTH prescriptions  are correct. But in actual practice, those same prescriptions merely accelerate  the vicious cycle: The more that governments cut their budgets, the more it  sinks the economy and the bigger the banks’ losses. At the same time, the more  that banks seek to build their capital, the more they have to pull back on  lending — a key factor driving the global economy into a tailspin.

Think I’m overstating the problem? Then consider these horrifying facts.

Weiss Ratings has just completed a major study of global banking. The results won’t be ready for release until early  next year. But here are the big-picture conclusions:

First, among the major banks in the world, the 16  largest that we have identified as weak and vulnerable now control a whopping  $26 trillion of the world’s banking assets, far more than the TOTAL assets of  all U.S. commercial banks.

Second, since their share prices hit their peak  after the last debt crisis, these 16 banks alone have suffered stock price  declines that equate to a whopping $535.6 billion loss in market  capitalization.

In other words, the banks are HUGE — the  primary source of financing for the entire world. But their ability to raise  capital has been gutted by the decline in their share prices.

And yet, these are precisely the banks that  must issue more stock to RAISE more capital in order to avoid bankruptcy!

How can they do that when their share prices  are so low? And how can they avoid cutting back dramatically on their lending?

They can’t. They won’t. That’s why the global  economy is headed for a 2008-2009-type scenario. And that’s why you MUST be  fully prepared.

My advice:

Follow the steps my team and I have been recommending.

And stand by for urgent updates in the  critical days ahead.

Related: Financial Sector ETF (NYSEARCA:XLF), Direxion Daily Financial Bull 3X Shares ETF (NYSEARCA:FAS),  ProShares UltraShort Financials ETF (NYSEARCA:SKF), Direxion Daily Financial Bear 3X Shares ETF (NYSEARCA:FAZ), ProShares Ultra Financials (NYSEARCA:UYG).

Good luck and God bless!

Written By Martin D. Weiss From Money And Markets

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.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com/.

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