The Truth about EU Summit #19

We thought our previous posting on why there's any spark in US real estate was going to be our final posting of the week.

Then we find out during the very late evening of a 19th 'make or break' Euro summit to save the rotten union, that Germany basically goes back on all its core principles at the last moment and caves to Spain and Italy:

"Euro zone officials have agreed to lend bailout funds directly to struggling banks rather than through each nation's central bank. The move has the effect of taking the governments of Italy and Spain off the hook for their beleaguered financial institutions by reducing their debt obligations. The plan also solidifies the unity of the Euro Zone at a moment when many questioned its survival.

The deal represents a meaningful concession by Germany which had previously refused to take on the additional risk of lending to the institutions directly and as a collective. The loans would be made via the €500b European Stability Mechanism (ESM) upon the formation of a European Central Bank (ECB) supervisory body." (Yahoo!)

Of course the markets were overjoyed.. Dow is +238 as of 3:20p..

Of course like all fake "rallies", we are 100% certain this one will be quite brief and you will see a nice -200+ pt drop sometime next week when those vermin who make their living investing realize that absolutely nothing was accomplished except to kick the can another few weeks.. maybe.

We could take the time to explain all the reasons why this is so, but its Friday afternoon, the sun is shining and all that...   So instead, we'll repost a very astute and accurate analysis of the truth of yesterday's canard which was the 19th EU summit care of Phoenix Capital...

Some of the terminology and jargon may be confusing or unfamiliar, especially if you're a casual reader/follower of economics and global finance.  Don't let that scare you off.. Focus on the bigger picture and skim wherever you need to. Afterwards, you'll understand why the Eurozone is 'toast' and why investors who are excited by last night's news are utter morons.

*The rest of this posting are excerpts from Phoenix Capital, not us. Any underlined or text in bold was originally chosen by the original author.  However, to break up the piece as to be easier to read and follow, we added the pictures of tropical fish...

Have a good weekend... and keep your Euros next to your passports.

"Everyone in the media is viewing the latest announcements out of the EU Summit as game-changers.

They are not.

One facet of the deal is that ESM/ EFSF (European Stability Mechanism/ European Financial Stability Funds) loans to troubled countries will not subordinate private bondholders holdings.

While this does serve the purpose of allowing private bondholders to feel that should a country default, they might get their money back sooner (as opposed to what happened in Greece)… it doesn’t change the more critical issue of stopping defaults from happening...

None of the measures address the most critical issue pertaining to Europe: where is the money going to come from?

The European Stability Mechanism, which everyone sees as the ultimate savior for the EU, does NOT exist yet.  Only four out of the required 17 countries have ratified its legislation.

And the due date for ratification? July 9th.

So we have less than two weeks for 14 EU members to ratify the ESM.

Another interesting fact about the ESM… Spain and Italy will contribute 30% of its funding. So… the mega-bailout fund which is going to save Spain and Italy is receiving nearly one third of its funds from the very same countries it’s going to bail out!?!

You couldn’t make this stuff up if you tried.

Another topic worth discussing is the fact that EU leaders didn’t agree to increase the EFSF or the ESM. The simple and obvious reason for this is no one has the funds to do this.

No one seems to be listening: Europe is out of buyers. End of story. There simply isn’t €500 billion lying around to be put to use. That’s why the ESM and EFSF aren’t being increased in size. They couldn’t be...

Oh, and none of this will go into effect until December. Let’s hope Spain and Italy and others don’t need the funds before then!

The benefits of the announcements (lower yields on sovereign bonds and higher share prices in EU banks) will be short-lived.

None of these decisions address the core issues facing the EU banking system: namely, insolvency and excessive leverage.
 
No one in the EU actually has the money to make these measures work (again, Spain and Italy will provide 30% of the ESM’s funding).

Markets will stage a knee jerk reaction to these measures. That reaction will see bank shares rise and yields fall, temporarily. But this move will be short-lived... After all, these announcements are just more political measures than anything else. And Europe needs capital NOT politics at this point...

EU leaders may have put off the Crisis by a few weeks (or perhaps even a month). But they still haven’t addressed the core issues causing the Crisis: excess leverage courtesy of hundreds of billions of Euros’ worth of garbage debt."

The REAL reason for improved Real Estate

The corporate media... ugh.. What can we say about them but just..  Ugh!

Their relentless non-stop 24/7 pursuit to push the lies of economic optimism and 'recovery' would almost be admirable if not for the fact it is so harmful and dangerous.

We discovered this nonsense from NY Times today:

After Years of False Hopes, Signs of a Turn in Housing -- "After several years of false hopes, evidence is accumulating that the optimists may finally be right.  The housing market is starting to recover. Prices are rising. Sales are increasing. Home builders are clearing lots and raising frames."

And the sun is shining, the birds are chirping, the cows in the meadows are 'moooo-ing' and flowers are in full bloom in all directions, as far as the eye can see....

Ugh! is right..

The rest of the NY Times article actually is more dreary in tone about housing than the exaggerative headline and opening paragraph suggested.

Still, let's say the Times article is 100% correct (which it isn't)... Why would there be a positive turn in housing?  Is it that more people are now able to secure adequate lending?   Or are good paying jobs springing up in abundance to allow people the means to pay their mortgages?

Maybe...

OK, actually No, not at all..

If housing is recovering (which its not), its more to do with this...

Overseas buyers seek shelter in U.S. real estate -- "Buyers from all over the world are snapping up U.S. real estate the way prospective brides yanked discount wedding gowns off the racks at those Filene’s Basement sales of yore.

Yes, some of the buyers are the super rich, like the Russian billionaire who allegedly bought an $88-million New York penthouse for his daughter. But others — upper-middle-class professionals and small business owners — are scooping up condos, townhouses and single-family homes. They’re buying in suburbs as well as cities. Nearly 40% are using their new homes as primary residences..." (MarketWatch)

That's interesting isn't it?  Gotta love how much the US dollar has devalued vs other currencies.. Thanks Fed.

And so, who is buying up American homes?

"Canadians were by far the most frequent buyers, representing one out of every four dollars of international real estate purchased. Chinese nationals, Mexicans, Brits and Indians followed...  most of them pay cold, hard cash."

~ The United States... 11th Province of Canada

How nice for them...  And why would international vultures.. ~cough... um, I mean people seek ownership of American homes?

"U.S. real estate can be a great investment for foreign nationals. The real estate crash that began several years ago has produced some extraordinary bargains...  International buyers view the U.S. as a safe haven for their money, governed by the rule of law and respect for property rights. Nearly a third of foreign purchasers viewed U.S. real estate as a “secure investment.” "

That's lovely..  Nice to see others benefiting and profiting off US misery with the full blessing of US leaders who actively encourage it.

Of course the ability of Americans to buy homes is not improved upon but who cares right?  As long as the real estate market is improving..  By any means necessary, yes?

Yep everything is super.. why, look at South Florida for instance... real exciting what's happening there...

Brazilians snap up South Florida real estate sparking new boom -- "Waves of wealthy Brazilians are landing on South Florida’s shores and spending millions of dollars on vacation condominiums, clothes, furniture, cars and art, all of which are much less expensive here than in their homeland...

A Miami real estate broker said, "The dollar exchange rate now is very good for the Brazilians, so now is the time to buy. And on top of that, the prices of the properties, they went down big time, about 50 percent. It's a big discount.”  (CNBC)

Ahh yes.. gotta love a dramatic discount on housing that only non-Americans can benefit from?

~ Is the Brazilian volleyball player passing secret plays to her teammates or secretly middle-fingering America?  We'll get back to you...

"The economic impact would be even greater, say local economists, if Brazilians, like Europeans, could come and go using only passports rather than wading through the red tape of applying for tourist visas.  In recognition of this obstacle, President Obama recently discussed the subject with Brazil’s President Dilma Rousseff during her first official visit to the White House"

Funny how the NY Times never made mention Once of this trend as to why real estate is improving.  The assumption is American buyers purchasing homes from American sellers, and the real estate market finally on the way to prosperity and happiness for all..

Let's be honest, how can anyone celebrate or root for a US "recovery" that is mainly for the benefit of the very wealthy and for non-Americans?

When foreigners are buying up US homes because they are dirt cheap and make super investment opportunities i.e. foreign house 'flippers' while Americans are denied mortgages, how do we benefit?

When US corporations' profits go up while maintaining a skeleton work force of employees mixed with disposable temps, how do we benefit?

When the stock market goes up and up based on outright direct manipulation and rigging by the Fed while it creates inflation i.e. overall rise in cost of food, fuel, clothing, etc, how do we benefit?

How do WE Benefit??!!

We don't... yet the media pushes the lie that we do.

Its a new world we're living in.. one where realistic optimism is replaced by manufactured, contrived positivism; a world where the "haves" shred any pretense of empathy for the "have-nots"

The mindset is simple: There's going to be an American "recovery" and we're all going to celebrate it dammit!!  And its going to happen because of Americans' standard of livin improving OR in spite of it!

The Wealthy "Must" Know More than Others...

Whether its right or wrong, smart or stupid, when it comes to economics and finance, people respect the thoughts and opinions of the wealthy.  The assumption of course is that they must know what they're talking about since its obviously how they acquired the wealth.

If your net worth isn't in the millions, everyday people don't value the advice you provide, just like if your net worth isn't in the hundreds of millions or billions, CNBC doesn't drool over you.

We tend to forget factors for wealth accumulation that have nothing to do with business brilliance such as inheritance, hiring others to manage money, shady unethical (and sometimes illegal) business deals, and of course, good old fashioned plain dumb luck...

So with that said, we understand that unless we display gaudy bank statements, most who read this site will take what we say about the US economy and Europe & Eurozone with grains of salt even if we're 100% correct most of the time.

That's fair enough.  We only inform.. we can't make you believe.

So let's see what the 'brilliant' and 'superior' wealthy think..

~ C. Montgomery Burns mixed with deceased Apple CEO Steve Jobs.. Wow, talk about Double Pure Fucking EVIL! ~ Shudders..  Grins..

"If you want proof that the world's wealthy are worried, consider this: Swiss banking clients have nearly a third of their portfolio in cash. And one in five believe the Euro will collapse.  The findings are included in a new report from LGT Group, the Austrian banking company, conducted with Austria's Johannes Kepler University...

In Switzerland, 58 percent of private banking clients have lost confidence in the financial system... Fully 22 percent expect the euro zone to collapse. The number was the same for Austrian clients...  (they) are reducing their diversification strategies and retreating to gold and cash..." -- CNBC

Interesting..

And what do those super-brainy economists think?  Sure they got the 2008 all wrong and have been minimizing the carnage at every step of the global recession/depression but since 'everyone' respects their opinions... what is their view of the survival of the Euro?

"Nearly half of the 22 economists surveyed by CNNMoney expect at least one country to pull out of the eurozone, and most of them think two to four countries will leave. One respondent is forecasting five to seven departures.

The economists also believe that the eurozone crisis will reach far beyond the European borders. Half said that Europe's problems are the most serious threat to the U.S. economy.

None of the economists predict there will be a complete breakup of the euro, as all of them said that the majority of EU residents will remain on the common currency." (CNN/Money)

Once again..  Interesting

In 2010, economists surveyed predicted the EU would fracture within 5 years and one economist specifically said about Greece that it "will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup" (Telegraph UK 6/5/10)

Looks like the economists still have three years to be proven correct...  of course we at A&G believe this all will occur within the next 1-4 months..  so we'll see.

The important things are this:

1)  If you live in Europe, even in a nation not directly affected by the problems of the Eurozone, have cash handy..  Keeping it in a bank will do little good if/when things quickly deteriorate.  And remember there are no parties or celebrations that occur with a bank "holiday" -- you simply can not access your money.

2)  If you live in the US or other parts of the world, you are not immune.  Buffered to an extent, yes.  But immune, no.  It never hurts to keep cash with you can have quick & easy access.

3)  When it comes to what will happen next with the EU or specific nations in it... or the global economy, no one really knows anything.   They assume.. they guess..  they hope..

Life is fragile.. one day at a time.   Modern finance is no different.

Nuggets about Gold

Yesterday's stock market (6/27) saw gold close at $1,574/oz

Do you know how much weight 1 oz is?   Simply place 3 Oreo cookies in the palm of your hand... that's how much 1 oz weighs...

Do you know when was the first time gold reached $1,000?

Was it 1918?   Perhaps 1931?  Or maybe 1945.. or 1963.. or 1991...

Nope.

The first time in US history gold traded at over $1000 an ounce was in 2008... Specifically,  March 12, 2008.

Wonder what the economic climate was at the time, especially since after all this was still pre-Lehman Brothers?

"Gold prices touched the $1,000 milestone for the first time Thursday (3/12/08) as the dollar plunged amid nagging fears about the health of the U.S. economy."  -- CNN/Money

The US was in a recession back then.. Wait, correction-- the US is Still in a recession.  Its just that in March 2008, people admitted it..

Here's a funny-smug comment in that CNN article about gold and the US economy -- "When the economy ends its current downturn, gold prices should eventually fall, as they did 28 years ago. After hitting the $847 mark in January 1980, gold futures fell 70% to $253 in August 1999."

Interesting information in that little paragraph..

1)  Notice how cocksure the mainstream media was that the recession would end quickly and implication that those who owned gold were fools ("gold prices should eventually fall")?

Well the economic downturn hasn't stopped and gold has not dropped

2)  In a little less than nine years, from August 1999 to March 2008, the value of Gold rose $747 per oz (approximately 400%)

What happened back in 1999 to cause such a drop in gold?

Oh yes.. the Dot.com bubble was still expanding.  Everyone was rushing to put their precious $$ into every internet start up they could find.   Then it went 'Poppp!' and the stock market valuations have really yet to recover from it, which is why the Fed intentionally pushed the post 9/11 housing bubble, and now the QE/liquidity bubble.

~ Talk about an expensive skin peel!

Here's another little piece of interesting information from the article:

"The $847 level in 1980 would be worth $2,170 in today's money, more than double the current price of gold"

This one sentence written over four years ago goes to the very heart of the money devaluation we're all experiencing and few truly noticing thanks to central bank policy. (think of a lobster slowly boiled in a pot)

Someone in 1980 could have bought a little over 2oz of gold for the same amount of money in terms of purchasing power as what someone would need to buy 1oz in 2008.

The purchasing power of the US dollar has declined 50% in 28 years.  And most really never noticed or paid attention because what was the economic buffer of this and of stagnant wages, was the explosion of accessibility of personal credit.

But gold, like any publicly traded commodity goes up and down, even in time of economic misfortune.    Last July, gold was valued around $1757/oz.

So why the drop in value by about $200/oz in the last 12 months?

The answer is found in the video we presented in our last posting.  Investors want certainty and right now the only certainties for investing are assets that are implicitly and explicitly guaranteed by central banks i.e. the Fed.

In other words, if the price of gold, oil or soybeans drops precipitously, there will be no government intervention to back stop that plunge to protect investors.   Market forces are still alive there and if you lose $, you're on your own.

With stocks, if it drops too quickly or too deeply, the Fed will virtually guarantee pumping more liquidity via QE, "Operation Twist" or other manipulative scheme to protect investors so they financially suffer... That is until something happens in the world to trigger a panic sell; a "black swan" event.

* 'Black swan' -- A metaphor that describes an event that is a surprise (to the observer), has a major impact, and after the fact is often inapproprately rationalized with the benefit of hindsight.

And when that happens, gold will skyrocket.

We don't advise you to buy or sell gold.    We're not financial advisors and we do not profit or benefit from one decision or another.  Everything in life has its plusses and minuses-- gold ownership is no different.  Be Smart.

There are two current economic truths to remember:  the worse the global economy gets, the lower the interest rates and the higher the price gold trades at.

Academy of Couture Art Le Reve Gala celebrates next generation of haute couture

Estella Warren (star of Tim Burton's "Planet of the Apes") joined
Academy of Couture Art founders Sonia & Thierry Ete at the
ACA's 2012 Le Reve Gala, showcasing graduating works.

The Academy of Couture Art, recognized as being one of the leading accredited schools upholding the time honored tradition of haute couture technique and craftsmanship in made-to-order fashion design, hosted it's annual gala at the Sofitel in Beverly Hills.

Hosted by Rachel Bailit of the Conan O'Brien Show the 2012 event, Le Reve, celebrated achievements in design from full Bachelor of Arts in Fashion Design degree graduates through to the teen couture program.

Samantha Mumba (platinum recording artist and star of "Time Machine")
joined Academy of Couture Art founders Sonia & Thierry Ete at the
ACA's 2012 Le Reve Gala, showcasing graduating works.

Many special guests supported the special evening with the next generation of haute couture designers including the beautiful star of Tim Burton's "Planet of the Ape's" Miss Estella Warren; the stunning leading lady of Simon Wells' "Time Machine" and multi-award winning recording artist Samantha Mumba; Leading fashion designer Louis Verdad; Miss Lois Aldrin; Miss Terri Gans in official capacity representing the French Consulate General in Los Angeles; Miss Southern California Fehbe Meza; Elizabeth Matthews from the LACMA Costume Council; Paul Mitchell's John Paul deJoria II; and 45x-Gold Medalist, 3x-world Tae Kwon-Do Champion, 5x European Champion, 5th Degree Tae Kwon Do Black Belt, former Ford model and co-star of Warner Brother's "Tekken," Anton Kasabov.

The Academy of Couture is a genesis of true haute couture.  In developing their role in the global fashion community, the Academy of Couture Art created for 2012 an Honorary Board of Directors for the College in advance of the official launch of Couture Guild International, inducting two members at the Le Reve Gala: Her Royal Highness Princess Theodora of Greece and Denmark and Her Excellency Michelle Czernin von Chudenitz und zu Morzin.   Honorary Membership shows support for the ACA community and the mission of couture. Some members offer to make special guest appearances at our events or even hold intimate guest lectures in the college. Others choose to represent their support simply through the listing of college Honorary Members.

Founded by Sonia Été and Thierry Été, the Academy of Couture Art in Los Angeles provides an exclusive education in haute couture technique and design formerly unavailable outside of the leading European fashion houses.  Students learn the delicate process of creating one of a kind pieces.  From pattern making to handcrafted lace and beading, the program is an homage to the beauty, sophistication, innovation, intelligence, elegance and harmony of the creation.

HRH Princess Theodora of Greece and Denmark (aka Theodora Greece, "The Bold
& The Beautiful") joined Academy of Couture Art founders Sonia & Thierry Ete
at the ACA's 2012 Le Reve Gala, showcasing graduating works.

Graduates for their Bachelor of Arts in Fashion Design including Maxfield Freiermuth, Sarah Kim, Mariana Romero Tejeda, and Angela Wu presented their thesis collections.  Justin Howard, fashion columnist for the New York Times commented that his "ones [designers] to watch" list will be growing with names from the Academy!

As part of their global program, the Academy of Couture Art was invited in May 2012 to participate in the Monaco Charity Film Festival.  In honor of the Principality of Monaco and under the personal direction of ACA Founder Sonia Ete, students Katherine Enyart, Maxfield Freiermuth, Ciara Green, Sarah Kim, Rachel Nourmand, Margaret Roberts, Mariana Romero Tejeda, Raquel Van Daalen Wetters and Angela Wu created the Grace Kelly Collection.   An Award for Costume Design in Film presented at Monaco Charity Film Festival was presented to the feature film, "My Kingdom" (China/HK 2011) produced by Andre Morgan and Zoe Chen.

Finally, the Teen Couture Design Club presented full looks by Rachel Cohen, Mari Goldberg, with special piece designs by Kilina Peltereau-Villeneuve and Michaela Purwin.  Miss Rachel Cohen was crowned Miss Teen Couture in acknowledgement of her outstanding design, pattern making and technique in construction of her self-worn dress.

Proceeds for the evening went to the Children of War Foundation.

For more on the Academy of Couture Art, please visit http://www.academyofcoutureart.edu.

Rights-free photos with mandatory photo credit © 2012 Academy of Couture Art/Lord Byron available at: link here

All related media inquiries contact:
Popular Press Media Group (PPMG), media@ppmg.info, +1-310-860-7774.

# # #

Anton Kasabov ("Tekken") joined the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Lois Aldren joined the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works..

HE Countess Michelle Czernin von Chudenitz Morzin joined Academy of Couture Art founder
Sonia Ete at the ACA's 2012 Le Reve Gala, showcasing graduating works.

Rachel Baillit was the Master of Ceremonies at the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Miss Southern California Fehbe Meza joined the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Guests at the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Guests at the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Terri Gans at the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Estella Warren attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

HRH Princess Theodora of Greece and Denmark attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Samantha Mumba attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Anton Kasabov attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

HRH Princess Theodora of Greece and Denmark attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Samantha Mumba attends the Academy of Couture Art's
2012 Le Reve Gala, showcasing graduating works.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala. 

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.

Graduating works are showcased at the Academy of Couture Art's 2012 Le Reve Gala.