Saturday, June 16, 2012

Increasing Turmoil in Europe

Social unrest has been on the rise in Europe with hot spots in Greece, Italy, Spain. All eyes are on the June 17, 2012 elections in Greece and their possible implications, but financial hardship has also been increasing in Spain and Italy.

As suggested in the previous blog entry, Spain's banks got a $125 billion (100 billion euros) bailout on Sunday afternoon (June 10, 2012). The bailout news resulted in a short lived euphoria that fizzled out by the end of the next day. The IBEX 35 gapped up by more than 5% only to close the entire gap within a few hours. All the other markets (including the US markets) also gapped up in the hours before trading on Monday (June 11, 2012) only to close their gaps by the end of the trading session.

The IBEX 35 tells the story of increasing social unrest and financial hardship in the peripheral nations of Europe that continue to unfold since the Greek debt crisis started to unfold in April 2010.

Here is a long term chart of the IBEX 35:

The IBEX 35 was created back in 1992. Since inception, the index peaked at around 16000 in April 2007 before starting the bear market trend that is still in force today. The index has fallen to a low of around 6000 last month before starting another bounce.

Here is a closer look at the IBEX 35 from 2009 to today:

Like all the other markets, the IBEX 35 reached a Primary degree low point in March 2009, which would be the end of Primary wave [1] down. The low point was followed by a bear market rally, Primary wave [2] up, that lasted less than a year and took the index from the upper 6000s to just over 12000. The IBEX 35 has breached the March 2009 low and the deflationary downtrend appears to be picking up momentum. The best count for the IBEX 35 is that a series of 1s and 2s is unfolding. A small wave 2 bounce is in progress now, which will quickly give way to new lows. The main count as shown on the intermediate term chart indicates that the center of Intermediate wave (1) of Primary wave [3] down will soon be reached.

The center of Intermediate wave (1) of Primary wave [3] down in Spain, Greece, and Italy is very likely a key event, as it will result in the "Panic of 2012". The coming point of recognition will likely result in Spain and Italy both needing a bailout, yet Spain and Italy are both too big to bail out. Without a bailout, Spain and Italy will default on their debts, resulting in a global ripple effect that rips apart the economies of the Western World, bringing out the next stage of the "Crisis of the Western World".

There are already a lot of precursor events unfolding that are indicating that the "Panic of 2012" will take place in Europe in the near future:

1 -- Nations in Europe have been hit with a barrage of credit downgrades in the last few days. On June 13, 2012, Spain's credit rating was downgraded by Moody's from A-3 to Baa-3. Just one day later, Spanish 10 year bonds hit the key 7% level. On Friday, June 15, 2012, Moody's cut the credit rating of 11 European banks and said that more downgrades will take place of Greece ditches the euro.

2 -- Italy's 10 year bond yield is also on the rise, hitting 6.25% and threatening to make the burden of the $2.5+ trillion debt an even heavier burden to carry as interest payments on the debt continue to rise.

3 -- The June 17, 2012 elections in Greece have been hanging like a dark cloud with many central banks gearing up for another round of intervention with the European Central Bank possibly cutting interest rates and Britain's central bank possibly infusing the markets with more money. Given the strong level of bearish social mood present in Greece, the most likely outcome of the election is a government that is plagued by strife and discord to a degree where a cohesive government is impossible.

4 -- The IMF (International Monetary Fund) has been urging Spain to raise its VAT, reduce salaries of employees, and reduce pensions and housing deductions as a solution to its debt crisis.

5 -- The Greek election has also resulted in substantial involvement of the EU as German officials continue to make a push in Greece for voters to keep the conservatives in power with all the usual fear-mongering -- a vote for the left would imperil the euro.

The larger Grand Supercycle degree bear market is already having an effect in Greece, and will soon have the same effects in the rest of the Western World. So far, Greece has proven to be a good leading indicator of what will unfold in the rest of the Western World as "The Great Deflation" continues to unfold. Greece's power grid is already starting to come under pressure and stress, in addition to the barter markets that started to come up last year. Also under pressure in Greece as a result of the bear market is the nation's health care system in which the debt crisis threatens to bring about the collapse of the nation's health care system as hospitals and clinics face possible closures as the financial crisis worsens. The events in Greece all point to a scenario where economic and living conditions in the Western World will decline to the level of the 1930s, some nations reaching that point sooner than others.

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