As usual in bear markets, people are looking at the wrong thing. I don’t think the Greek situation will bring on trouble. The market doesn’t wait for trouble, it looks ahead – it discounts. So far, the stock market is snoozing through the Greek situation. I’m tired of hearing about Greece. Will it? Won’t it? Maybe? From the market’s standpoint, Greece is a non-event. My thinking is that Greece will exit the euro and the Eurozone. The stock market obviously knows of this possibility, and it is surely discounted already.

I suspect the real trouble will come from China. Chinese stocks are in a bear market (is it a Black Swan?). They’re down over 20%. The government is obviously worried about the falling Chinese market, and is preparing for a huge injection of liquidity. I’m much afraid that the primary trend of the Chinese stock market is bearish. I’m also afraid that the bear market in China is on route to fully express itself. When the planet’s second largest economy and stock market is in trouble, I have to take it seriously.

China has been on a furious building boom, which has pushed its GDP up. China has built trillions of dollars worth of buildings. But the buildings are empty; nobody came to the party. How did China pay for all this? China owns $1.22 trillion of US bonds. It paid for it by selling a portion of its US bonds.

China’s selling of US bonds has pressured the bond market down for the past five months. As bonds decline, interest rates rise. This is the last thing the Fed wants. Rising interest rates are deflationary. What will the Fed’s reaction to deflation and rising rates be? They will fight deflation with inflation, by creating billions more fiat dollars.

The 4 paragraphs above were an excerpt of Richard Russell’s Dow Theory Letters. Richard posts daily updates to his subscibers to his newsletter that is published every three weeks. He has been publishing that newsletter continuously since 1958, and with the advent of the internet began his daily updates. Richard is also responsible for a proprietary indicator call the PTI.  click here to subscribe.

When asked whether we are actually going to see contagion spread further, Faber said: “I think the likelihood of contagion is very high. And I have to say when you have a borrower, you also have a lender. And it’s actually, in my view, amazing how the EU kept on pumping money into Greece, partly also to bail out their own banks. And suddenly now the debt is no longer manageable.” – read or view the entire article HERE

…also:

Faber warns of Colossal Systemic Risk in Markets – discusses his concerns about the markets.

also:

Faber on Grexit : Greece is an irrelevant country in Global Economy

It’s less than 2 percent of global GDP. Economically it has no impact. However the impact, this is the problem for whole world, is that the global financial system is far too big for the real economy, and so whenGreece defaults, it may threaten some institutions like the International Monetary Fund, the European Central Bank, and the banking system. This is the issue. If such a small country can have such a huge impact on the financial system, it means the financial system is very fragile. That’s the problem in my view,”

A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

….read the whole July 4th article HERE

The idea of creating one unified European government to prevent European wars has grown out of a lesson learned from the disaster of World War II and German Nazi dictatorship. The Nazi movement wanted to rule Europe in part as retribution for the oppression of the German people following World War I, with the harsh reparation payments that even Keynes objected. This extraction of wealth opened the door for Adolf Hitler to come to power on the heels of oppressing the German people for the mistakes of their political leaders. Today, Greece faces the same fate.

The Troika wrongly believes that if they compromise with a left-wing government in Greece, they will encourage such a movement to rise in Portugal and Spain, no less Italy and France. Yet the whole idea of a new European Union with a single currency was indeed the same goal maintained by both Hitler and Napoleon. Political leaders in Europe adopted this idea of one government to eliminate war at the Treaty of Rome to create peace, further democracy, social welfare, economic development, and environmental sustainability. Europe should stand for these common values, but not at the price of economic totalitarianism. 

You cannot achieve peace by means of oppression. It was often a common practice to kill the family of one’s political opponent for the offspring might rise to avenge their father’s murder. Oppressing the people of Greece, in the manner that we ground the Germans into the dirt, will lead to civil unrest that will further civil war by rigging the referendum.

Now, the Troika is afraid to compromise and places all the blame entirely upon Greece. The Troika truly despises the new government in Greece for they fear any conciliation will result in encouraging more left-wing political governments who stand-up against austerity in other member states. The Troika has the same goal as Obama did in Russia – oppress the people to force them to overthrow their government. This policy only made Putin stronger. The Troika runs the same risk in Greece by refusing to compromise on anything with the Greek government. The Troika’s plan to overthrow the Greek government may haunt them in the years ahead and spark other nations to rise up as well. This policy of you can check-in, but you can never leave will be exposed for its totalitarian nature and the death of any real democratic foundation in Europe.

There is simply no resolution to the Euro Crisis with the Troika in charge; what info we are getting from behind the curtain shows a dangerous attitude akin to “we do not negotiate with terrorists.” The Troika feels yielding to any opposition will lead to the demise of their euro dream. This economic design of a single currency, leaving nations with their debts intact, is just unsupportable. We are going to see a very serious crack in the political system of Europe over the next four years.

And markets are totally unprepared

“As we think about the potential for global capital movements not only geographically, but also as movement among asset classes, all eyes should be on the global credit markets. So much capital is stored there that if it starts flowing out, and likely to the sidelines (i.e. safe havens), prices for everything are going to be impacted. And losses to today’s most commonly-held financial securities could be absolutely tremendous.”

…read the entire article HERE