Out to Get You

 | Nov 30, 2011 | 10:11 AM EST  | Comments
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As I search for themes to describe this market, my recent fixation on old school movies took me back to one of the funniest movies of the late 1980s, I'm Gonna Git You Sucka. The classic Keenan Ivory Wayans movie embodies everything you need to know to understand today's equity markets. The bottom line is that most peripheral European countries are going to default on the massive debt they can barely roll over, which we can relate to from this scene.

For some reason, the market set up the "suckas" by rallying on an 8% Italian bond auction, which should have been a shocker but now passes for relief that it wasn't 10%. The European governments are about to go through yet another series of ineffectual actions to defer taking decisive action yet again, but the reality is that the European Central Bank (ECB) is going to have to buy huge amounts of bank-held sovereign debt to prevent the banks from becoming insolvent. The resulting inflation will manifest itself in the prices that everyday people in Europe pay -- can they even afford one rib anymore?

Anyone speculating in euro debt should be prepared: The markets are about to get you sucka. You are not getting what you think because the ECB can only backstop losses by being prepared to print massive amounts of money to monetize bad debt. So you may be made whole, but it will be in devalued euros. It's better to position for euro (and dollar) devaluation by owning Canadian or Australian currencies, or gold. You need to have a defensive portfolio, since you can never have enough armor when Europe rolls over and the defaults start rolling across the continent.

If you fail to prepare for extreme stress in the eurozone, your portfolio may suffer cramps of incredible proportions.

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