You’re about to miss your chance to protect yourself from the next financial crisis. Nick Hubble’s predictions are coming true too quickly.
It was only weeks ago that Nick and I recorded the warning together. But the video is already out of date thanks to the accuracy of Nick’s warnings about Bloody October.
The thing is, this is no flash in the pan. Since February, Nick Hubble has been warning about what would happen at each step of Italy’s crisis. And he’s been spot on each time.
Things are escalating fast now. Nick’s forecasts are playing out in the news cycle on a daily basis. Today is one of the crucial “crisis trigger points” on the crash calendar Nick first published in June.
But right now, the critical thing to know is this. The most serious (and accurate) warning we’ve ever shared with our readers is coming offline later this week. It’s all coming true. This could be your final chance to protect yourself…
Your first warning
It began in Capital & Conflict on 5 February, when Nick issued his first warning:
Italy is set for a debt crisis just like Greece’s in 2012. But it’s too big to fail, and too big to rescue too. Not a good combination for the eurozone or global financial markets.
On 16 February Nick elaborated. He singled out the very reason your portfolio will be deep in the red for October:
There’s a particular reason the election in Italy is so important to the euro.
The political parties all have plans to worsen the government budget even more. This would violate EU rules, leading to a political standoff.
And so the Italians are holding a gun to their own head as a means to threaten the EU into approving their crazy schemes. If the EU doesn’t approve the Italian government’s plan to spend even more money, Italy will leave the euro or default.
That’s precisely the problem wreaking havoc on the FTSE 100 recently. And Nick saw it coming it in February…
Zero Hour Alert
In April, Nick and Boaz launched Zero Hour Alert. Nick’s predictions for Italy formed the centrepiece. He laid out his case in far more detail. Here’s some of what he wrote, with my emphasis added:
Perhaps the result of the 4 March elections will be enough to break the Italian bond market in the end. The announcement of the makeup of the coalition government could spook markets in coming weeks. Perhaps it’ll be the release of the new government’s first budget? Or when it attempts to raise the money to finance spending and roll over its debt? Perhaps the negotiations with the EU over its budget rules will start a rout.
[…] almost all possible triggers I’ve just mentioned are aligning for 2018.
Two weeks later, all hell broke loose in financial markets. And it was for the precise reason Nick delved into in his Zero Hour Alert report.
The makeup of the Italian coalition government was announced. And the markets panicked because a eurosceptic was appointed finance minister. Back to that in a moment.
A few months later, markets plunged again for the second reason Nick mentioned in his April report – the budget. Here’s how Nick explained his prediction in detail months before it proved accurate, emphasis added:
The bluster of Italian politicians tells you they know the most important political fact. Italy is too big to fail and too big to save, but the EU is desperate to keep it inside the Eurozone. Threatening self-harm is a viable strategy for Italian politicians to get what they want.
But what they want is not even a mildly credible fiscal plan. It will only worsen Italy’s financial situation, deferring the crash at best. There is no way out of the economic crisis for Italy without leaving the euro.
The timing of Nick’s forecast is as remarkable as its accuracy. The first Zero Hour Alert report was published on 25 April. The spread between German and Italian ten-year bonds bottomed out on that day. And held steady the next. Then it spiked and triggered a panic which lasted for weeks.
Just days after the spread launched upwards, the rout in two-year Italian government bonds began. And the Italian bank stocks began to sink next. The FTSE Italia Banche index was down over 10% in a matter of days and 20% soon after. Then the rout spread to EU banks, which took only four days to fall 10%. US banks fell 3% in a single day towards the end of May.
But calm was eventually restored in June when the academic Giovanni Tria was appointed finance minister instead of the eurosceptic initially proposed.
Most people thought the crisis was over. Nick said otherwise in a Zero Hour Alert update on 25 June 2018:
Is Italy’s financial crisis over already?
Dear reader, it has barely begun.
The crisis triggers
In the Zero Hour Alert update, Nick laid out for readers the six specific “crisis triggers” to look for. I can’t mention them here – that’s for Zero Hour Alert subscribers’ eyes only.
But take a look at how accurate Nick’s predictions proved to be, with my emphasis added. Remember, this was back in June, when the mainstream media told you the Italian crisis was just a blip we’d already passed…
The Italian government looks set to worsen its fiscal position in its first budget. A huge deficit and borrowing binge is on the cards for 2019 if the populist parties live up to any of their campaign pledges.
Instead of focusing on the numbers, investors have latched on to statements from the new economy minister that a euro departure is not in the budget and he’ll bring down debt levels. Each reassurance pushed markets back up.
The day that the specifics of the budget are released will reveal whether the maths or the talk count in the end. If the government proposes the deficit spending it promised voters, markets could balk at having to finance the spending. If the EU pressures the ECB not to help out, yields could spike again.
The last three weeks have seen plunging stockmarkets and a serious rout in Italian bond markets. For the precise reason and at the precise timing Nick foresaw. He even issued a further warning.
Tria’s tangle
On 17 September, history repeated itself. Again, two weeks before all hell broke loose, Nick wrote to you about what was about to happen. This time in Capital & Conflict, with my emphasis:
The Prime Minister and Finance Minister must find a compromise between the two governing parties, bond markets, and the EU. But that is simply not possible. There is no such compromise solution.
The governing political parties have promised huge spending, which would collapse bond markets and violate EU rules.
The EU demands more of the austerity that ruined Greece, which would collapse bond markets and violates the electoral promises of the governing parties.
And the bond markets want a credible fiscal plan, which isn’t really possible regardless. Especially with GDP growth waning once more.
[…]
In October, all this will come to a head. I’ve been writing about that since April, weeks before the May mini crisis. What’s special about October? Italy must submit its budget for approval at the EU, before the Italian Parliament even gets a say.
But we might not even get that far.
Prime Minister Conte and Finance Minister Tria have been siding with bond markets and the EU. They promised a budget which cuts the deficit, doesn’t involve leaving the euro and only mentioned political promises as an afterthought. The governing parties that the Prime Minister and Finance Minister are sort of representing are not happy.
Already, the cracks in the government façade are showing. Italy’s figureheads are wobbling. La Stampa reports that Finance Minister Tria threatened to resign. He is “sick and tired of being the target of outbursts” from the governing parties.
La Repubblica claimed Tria told the Prime Minister he was “ready to step back immediately”. A Senator is already preparing the market for the news by saying Tria’s resignation won’t “cause the government to fall”.
Nick’s warning about what he called “Tria’s Tangle” proved accurate. The finance minister was eventually sidelined at the end of September. The two deputy prime ministers announced their own version of the budget forecast instead. It violated EU rules, put Italy on the path to insolvency and triggered a renewed crash in stocks and bonds.
Nick had also predicted the finance minister’s political pickle back in the Zero Hour Alert update on 25 June:
It’s unlikely the fragile coalition government of ideologically opposed parties will survive much stress. Having to appease bond markets, voters, the EU and both parties’ support bases all at the same time is impossible.
The question is which one will give first. Will bonds crash, Italy leave the EU and euro, or will the coalition deal fail?
But don’t forget, the real crash will come when the budget details emerge.
That is today.
Which is why I’d urge you to use this opportunity to review Nick’s urgent warning to investors, before it is removed from the internet later this week.
It’s crunch time
We’ve reached the deadline for the Italians to submit their budget to the EU for approval.
The crash potential of the market is still rising.
But what makes the EU so powerful when it comes to Italy’s budget? Why can’t the Italians just ignore the EU, as they have on accepting refugees?
Nick explained what makes Italy’s budget process so dangerous back in April. It’s all about the inability of governments, central banks and international institutions like the International Monetary Fund to stage a Greek style rescue effort:
In 2018, the financial crisis will be triggered in a place that cannot be rescued because the rescue has already happened. There are legal and political limits to any aid. And the problem is simply too big to handle.
The lack of a rescue is what Nick believes will truly shock markets and trigger a major financial crisis. On 25 June in a Zero Hour Alert update he explained this:
Never forget that in a world where policymakers have unrestrained power to act, if you are predicting a crisis, you have to explain why their powers will fail.
Explaining why something will go wrong isn’t enough. You also need to have a clear explanation for why the policy response will fail. Very few analysts do this for you.
Nick explained why the European Central Bank’s (ECB) rescue efforts would not only fail, they wouldn’t even be forthcoming in Capital & Conflict on 17 September:
Worst of all, the European Central Bank’s rescue mechanisms now require EU approval. Under the rules governing open-market transactions, a country must first submit to bailouts from the two new European bailout institutions. Think of them as a sort of European IMF, the idea being that Europe will deal with the next Greece by itself.
But Italy isn’t Greece. It’s bigger and more belligerent. Anti-EU sentiment will make them resist any bailouts with conditions attached.
A month later, on 12 October, Reuters reported from Bali that the EU bureaucrats had finally realised Nick is right. They’ve painted themselves into a corner:
The European Central Bank won’t come to Italy’s rescue if its governments or bank sector run out of cash unless the country secures a bailout from the European Union, five senior sources familiar with the ECB’s thinking told Reuters.
And:
Italy’s 2.3 trillion euro national debt dwarfs that of Greece and the euro zone bailout fund would not be able to cope with the costs of supporting its government in a crisis. Any such crisis could threaten the euro itself, seen by many as the EU’s greatest achievement.
This is precisely what Nick predicted back in April. A hamstrung ECB and a belligerent Italian government. The standoff means a crisis is the most likely outcome.
Why Italy is doomed
But it’s Nick’s reasoning that made the forecasts unique. As Nick understood and explained since April, it’s politics, not finance and economics, that’s at the heart of the Italian debt crisis.
But not in the way you might expect. Here’s how he put it in a Zero Hour Alert update on 25 June:
So why predict a crisis in Italy? Because the eurozone has a unique structure which makes a more serious crisis possible there. That is the whole point of my April report – “Surviving the Biggest Bankruptcy in History”.
[…]
You can think of Italy’s coming crisis as a revolt against the economic system of the eurozone, not a financial crisis. The default and departure from the euro will be the key consequences that pose a risk to your wealth. But this is about Italy escaping for the sake of its own future.
In the aftermath of the Genoa bridge collapse, Nick’s analysis took centre stage. On 20 August in Capital & Conflict, Nick laid out how the tragic events affected the nature of the coming budget battle, with my emphasis added:
I believe the showdown is scheduled for October, when the Italian budget is negotiated with the EU. And the Italians see the Genoa bridge collapse as their trump card. It’ll justify an infrastructure spending spree that lays waste to EU rules.
Nick’s claim, first made in April, that “the crash will be politically motivated” didn’t quite make sense to me at the time. Until we saw it play out in the news. The Italians are staging a democratic revolt against the EU that is causing problems for Italy in financial markets. You only need to listen to Italy’s political leaders to see that.
The Five Star Movement’s leader Luigi Di Maio said this: “Why don’t we just say that in this country it’s pointless voting, since it is the ratings agencies and the financial lobbies who decide the governments?”
Lega leader Matteo Salvini added: “We have a problem with democracy because the Italian people are sovereign and they cannot be ruled by spreads. […] It is a very serious matter than Mattarella chose the markets and EU rules over and above the interests of the Italian people.”
Lega’s economic spokesman Claudio Borghi was the most plain spoken:
In a way I am very happy because we have finally wiped the bull**** off the table. We now know that it is a choice between democracy or comfortable bond spreads. You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It worse than a religion.
What we are seeing is the fundamental problem with the eurozone construction; You can’t have a government that displeases the markets or the spread club. The ECB and the Eurogroup will use this to crush your economy. You are very lucky in the United Kingdom that you still live in a free country.
Do you see how it is the nature of the Italian political scene which has markets so worried, not just the Italian bond yields?
The Italians are hell-bent on retaking their sovereignty. Unfortunately, that means crashing stockmarkets for you. Read this now before that happens.
A democratic raid on the EU
Given the importance of politics in this crisis, Nick’s predictions about political currents have proved invaluable too. In the Zero Hour Alert update published on 25 June he explained how the European Parliament elections in May 2019 would be crucial for Italy:
The EU elections will take place at the end of May. Everything will change for both Brexit and Italeave.
The EU parliament will be filled with eurosceptic MEPs from across Europe. Democracy will finally strike at the very heart of the undemocratic institution ruling Europe.
Since then, Italy’s deputy prime ministers have made it clear that reforming the EU in their favour was a top priority: “Relax, in six months 500 million voters will fire them. We keep going,” said Deputy Prime Minister Salvini about EU opposition to his budget.
“There will be such an earthquake in all countries against the austerity that the rules will change the day after the elections,” Five Star’s Di Maio said in an interview with Corriere della Sera.
Anticipating the Italians’ next move suggests the crisis could ratchet up again in May.
Will the crisis reach the UK?
These days, the concern is about contagion. Will Italy’s sovereign crisis turn into a banking crisis and infect the rest of Europe and then the world? Nick warned Zero Hour Alert readers that “it’s time” on 2 October:
It’s time to activate the defensive and short positions that Boaz and I outlined in your various reports and guides. Bloody October has begun. The skirmishes are over. As the budget battle breaks out for real in coming weeks, you need to act now.
Nick issued this warning one day before the rout began. Since then, the FTSE 100 is down almost 7%.
So Nick’s predictions about Italy’s crisis triggers have proven extraordinarily prescient so far. But what about the bounces on the way down? Markets didn’t just fall in a straight line.
Nick’s foresight proved valuable once again. He doubted the lull in July and August would last, as I explained above. And in a Zero Hour Alert update on 9 October, he wrote this:
Any relief rally won’t be based on a meaningful resolution to Italy’s debt crisis. Because there is only one: default and leaving the euro. I’d treat any dead cat bounces with extreme scepticism.
The relief rallies that followed on 11 and 12 October didn’t even last the day. While EU commissioners were telling Bloomberg that Italy was fixed, the market plunged out from underneath them. Each time Finance Minister Tria tried to reassure markets, they only believed him until Salvini or Di Maio got back on the warpath.
Italy is special because it is in the eurozone
Why did Nick single out Italy? It’s not like high levels of debt aren’t a problem in other places, including the UK.
As he explained in his April report, Italy is stuck in the eurozone. That means it faces monetary policy and exchange rates that suit the eurozone on average, not Italy specifically.
Bloomberg’s Mark Cudmore agreed on 8 October:
Much of the investor complacency toward the threat from Italy’s debt crisis is the fallacy that worse scenarios have been survived elsewhere before.
Let’s be clear: no country in history that doesn’t control its own currency has ever had such a large debt pile. This situation is unprecedented.
That’s what Nick explained in great detail in his April report. His subscribers understand why his forecasts are coming true, not just watching them play out.
A step ahead
These days, Italy’s financial car crash is front page news, literally. On 10 October, Bloomberg reported on the hysteria in Italy’s newspapers:
The country’s biggest newspapers are running front-page stories about the bond spread as investors balk at the budget targets unveiled by the populist government last week and the consequences start to hit home. The extra yield on Italy’s 10-year debt touched 308 basis points Wednesday, close to the highest since 2013.
Even the European Commission President Jean-Claude Juncker is talking about the end of the euro: “If Italy wants further special treatment, that would mean the end of the euro. So you have to be very strict.”
And the markets are starting to agree with Nick’s forecast too. They’re pricing in a 20% chance Italy defaults in the next five years. The risk of Italy leaving the euro has been blowing out since April too.
“Italy Is the Creeping Concern for Finance Chiefs in Bali” reports Bloomberg.
But even as Nick’s predictions play out in the news, he’s stayed one step ahead.
On 7 September, Zero Hour Alert’s monthly issue was about a secret German plan to trick Italy into leaving the eurozone. It sounded implausible until you read the story. And then, on Friday, the Wall Street Journal suggested the very same! “Rome would be foolish to leave the currency, but it could accidentally goad Berlin to push it out”, read the subhead.
I don’t know about you, but I can’t afford to miss any of Nick Hubble’s predictions. He’s been right about everything so far. Here’s his critical warning to you today – which will be removed from the internet this week.
How low do the markets have to go before you take this seriously? Here’s the link you need again.
Until next time,
Nick O’Connor
Publisher, Southbank Investment Research
Category: The End of Europe