Europe’s Trillion Dollar Bailout, Short-Term Speculations, Rise of the Long-Term Unemployed and More!

• Europe unveils mega bailout… Rob Parenteau, Dan Amoss share investment implications

• Euro crisis offers convenient coverage for Fannie Mae bailout… another $8 billion down the drain

• The restless bread line grows: Long-term unemployed hit record highs

• Gold coin buyers flood U.S. Mint, on track for biggest month… ever?

  The Renaissance. The Age of Enlightenment. The Industrial Revolution. The Gilded Age. The Cold War. The Information Age.

The Bailout Age?

  The printing press already has its own prominent place in history, so we’re not sure what else to call the first couple decades of the new millennium. But after this morning’s news, there’s little debate: time to fire it up!

  The European Union (EU) and International Monetary Fund (IMF) announced a plan that comes straight out of the United States’ playbook: smother debt flare-ups with truckloads of “free money” while the central bank manipulates rates.

European leaders unveiled a $957 billion plan to save themselves and their currency. Here’s quick and dirty:

• The EU will pony up $560 billion in new loans and $76 billion in existing deals for the GIIPS nations (as we’ve taken to calling them… no reason to give pigs such a bad rap)

• The IMF says its ready with $321 billion

• The European Central Bank (ECB) has abandoned its old stance (and credibility) by launching a program to purchase government and corporate debt.

  “This is like pouring Chanel No. 5 on a French ‘lady of the evening,’” Rob Parenteau wrote us early this morning, “after a night of wanton debauchery.”

“Fiscal ‘consolidation’ will be sped up under the new policy announcement. That means the private income deflation we anticipate will show up sooner, and will be even graver. More public debt will be issued as public debt guarantees and other fiscal assistance are put into place. German bunds are now the most screaming short.

“However, I would not put on shorts on the euro or euro banks or buy a credit default swap (CDS) on banks until this rally flares out, which I expect by June, if not sooner. By then, you will have an even more advantageous point to pick at the carcass of the fatally flawed, by design — as many argued over a decade ago – eurozone.”

  “Just like the Treasury and Federal Reserve’s late 2008 bailouts and quantitative easing,” Dan Amoss agrees, “this announcement will only serve to make Europe’s economic adjustment even more painful for the private sector. The GIIPS debt balances need to fall one way or another, be it default or prepackaged haircuts and restructuring.

“The Eurocrats are doing the bidding of European banks that are unwilling or unable to take necessary write-downs. It remains to be seen whether striking/rioting citizens will allow the planned austerity measures to work. I have my doubts.

“Implications for investors: This weekend’s actions heavily reinforce the three-five year investing case for gold, because there’s little reason for investors to view the euro as a relatively ‘hard’ currency. This weekend’s actions also weakened the ‘safe haven’ status of German bunds; expect bund yields to keep rising if German politicians approve funding for the off-balance sheet strategic investment vehicle (SIV) contraption that was set up to evade the ‘no bailout’ clause of the euro treaty.”

  “The short covering rally should be fierce, but quick,” Parenteau advises, “given the tremendous oversold/overly pessimistic position markets were in going into this weekend. Savvy, cynical professional investors are welcome to go long risky assets like EPP or IBB (a Pacific ex-Japan ETF and biotech ETF, respectively) for the ride, but you must be ready to rip these positions out within a week or two.”

We give Rob credit for being early on the euro crisis. He’s been helping Richebacher Society members read the writing on the euro wall since late 2009. On Friday, he mentioned several funds that will offer “turbocharged exposure” to these themes. Society members can look forward to post-bailout updates soon. (If you’re not a member, join here.) Our second annual meeting will take place on the eve of the Agora Financial Investment Symposium in Vancouver, July 20-23, 2010.

  The short-covering response to the euro bailout made for one of the biggest opening gains in U.S. market history. The Dow and S&P soared 4% at the opening bell.

Since so many American stocks no longer rely on American growth, international bailouts are perceived as a “good thing.” Banks, especially ones with heavy European exposure, are leading the way.

  We revel in the irony. The U.S. taxpayer has inadvertently financed billions of the euro bailout, since the U.S. funds the majority of the IMF.

“The government doesn’t have money,” Chuck Butler reminds us this morning, “unless they take if from us. So in the end, who helped provide the $321 billion parachute for the eurozone countries? That’s right, you, me, and the other 53% who pay their taxes.”

That’s not entirely true. China, India, Japan and South Korea help out by lending the feds the rest.

  There couldn’t be a better day for Fannie Mae to ask for more money, could there?

Flying under the radar thanks to the euro bailout, Fannie Mae’s quiet request for another $8.4 billion will go largely unnoticed today. The mortgage masters lost $13.1 billion in the first quarter, including a $1.5 billion dividend it paid to the Treasury Department. Now they’re almost out of cash… again.

When the Obama administration approves the additional funds, Fannie Mae’s bailout tab will exceed $83.6 billion. Along with Freddie Mac, that bill will be ring in at $145 billion.

So long as their expense doesn’t come too close to the $5.5 trillion in mortgages they guarantee, no doubt the government will keep paying the tab, leaving Fannie and Freddie with little incentive to clean up their act.

  Wonks at the Labor Department are no doubt happy with the euro bailout too. It’ll keep the investment community from taking a closer look at Friday’s jobs report. Here’s one glaring asterisk attached to the rosy report: The legions of long-term unemployed are at all-time high.

  The gold price reacted very little to the euro bailout. In a way, it’s quite appropriate that the metal has been flat while markets around the world surge. The spot price is right where we left it Friday, at just below $1,200 an ounce.

  That’s not to say people aren’t buying gold. Au contraire, check this out:

Should this rate of coin consumption remain intact, May 2010 could end up being the biggest month in the history of the U.S. Mint. December 2008, the previous high, clocked in at nearly 180,000 ounces.

The rising demand for coins is another important reason to check out our latest online event on gold coin investing… just to make sure you know what you’re doing. The broadcast begins tomorrow at 1 p.m. EDT… be sure to be signed up in time. And don’t stress — it’s free.

  Since the euro has been granted a stay of execution, the dollar index has fallen a point and a half. It’s down from Friday’s high to 83.5 as we write. The euro, on the other hand, gained as much as 5 cents against the dollar since Friday. It’s at $1.29 as we write.

The currency implications of this euro bailout are getting interesting, especially considering the ECB and Fed’s role in manipulating all sorts of markets. We’ll discuss more tomorrow… stay tuned.

  A weaker dollar and hope for Europe has put a halt to oil’s dramatic fall. Crude had fallen $10 over the course of last week, to as low as $75 a barrel Friday. This morning, it has rebounded to $77.

  Perhaps this will provide some relief at the pump, where gas prices have crept up to a 19-month high. The latest Lundberg Survey pegged the national average at $2.92 last week, the highest price since October 2008.

  Although no one cares anymore, Thursday’s 1,000-point market crash is now being blamed on computerized trading. The “fat finger” Procter & Gamble trade theory didn’t hold up for very long.

“Computerized trading, which is driven by similarly programmed algorithms, is the main culprit,” Dan Amoss comments. “Only computers without an understanding of valuation and market history could have been selling quality stocks at 20-30% of intrinsic value aggressively at the 2008 market lows — which was clearly the case.

“Mom and pop investors have wisely chosen to remain skeptical throughout this bear market rally, making it very narrow and jittery, rather than broad and sustainable.”

  “As an individual investor, you might sometimes think that the market is unfair,” Chris Mayer adds. “All those big institutions with their armies of analysts and high-powered computer models and the research departments with access to nearly everything and stuffed with MBAs and Ph.D.s from all the best schools. And yeah, you’d be right. It is unfair.

“Those guys don’t stand a chance.

“As F.J. Chu writes, ‘Academic research has shown that large institutional investors (that is, $100 million or more under management) are the guilty culprits when it comes to being erratic and impulsive. Stocks with the largest percentage of institutional ownership consistently show the greatest change in ownership during periods of high volatility.’

“So wild price swings should not upset you. Frankly, I’m kind of relieved about this week’s decline. We needed this to happen. The market was running too hot. I can tell you my watch list is a little more interesting now. I wouldn’t mind a further decline.”

Look here to catch a glimpse of Mr. Mayer’s watch list.

  “An interesting thing happened with my portfolio Thursday,” a reader generously recounts of what happened during the crash. “While beneficial, it just as easily could have been detrimental.

“I have been slowly accumulating the quid to protect myself against the type of falloff that seems overdue in the market. I had a bid in for the last week to buy 200 shares of this inverse ETF at $12.55, about 15% below the then-current price. Clearly, the price action had not fallen to that level before yesterday.

“With the incredible plunge in the market, this inverse ETF price action took off to the moon, from $14 to almost $18. But magically, when the NYSE went into slow motion and with many of the current holders trying to lock in their substantial daily gains by dumping shares at the ‘market,’ the number of people buying at the ‘market’ evaporated and the ‘machines’ went searching for buyers at any price to handle the desired selling volume.

“Long story short, my buy order was filled almost $5 below what should have been the fair market price. There is no way that kind of nonsense should be permitted to happen.

“For what it is worth from my point of view, it appears that the morons who wrote the quant programs were so busy maximizing transaction speed — and thereby maximizing hedge fund trading profits and exchange brokerage commissions — that they left out an obvious fail-safe to protect stability of the markets and the financial welfare of ALL the participants.

“Just a thought.”

The 5: Hmmn… financial stability… such a quaint notion.

Regards,

Addison Wiggin

The 5 Min. Forecast

P.S. Just a quick reminder: Today’s the last day to sign up for our free online gold and silver coin event. Check it out: The Untapped Gold Market That No One’s Talking About