Europe’s endless negative feedback loop

It’s still a flattish, range bound market. Here’s the Nasdaq over the last month, pretty much when we started selling down and hedging:

It’s been flat and/or trying to peak here.

And here’s the Nasdaq for the last year:

Up 33% over the last year. Despite all the recycled headlines of how the EU’s debt crisis was supposed to panic you out of your fastest growing, most revolutionary stocks.

With the headlines starting to turn back towards “Europe Debt Crisis Will Ruin Your Life,” I want to talk about Europe today. While the markets are at multi-year highs and not when they have panicked over some province with lots of castles from the middle ages wanting to secede from Spain. Back nearly two full years ago, I wrote an a Revolution Investing newsletter entitled, http://www.marketwatch.com/story/europe-troubles-again-2010-11-30 “Europe Troubles…Again.” And I’m going to quote a few lines from it for today’s Revolution Investing newsletter because it’ll blow your mind just how much of a broken record this Europe stuff really is.

“Europe troubles. Did you hear about them? Everybody I know on Wall Street is panicking over the fact that Ireland’s government can’t pay back all its loans. But should they be? I’ve been investing and trading for fifteen years and one of the biggest lessons I’ve learned over that time is: Ignore Europe.

Unless you’re reading this from Dublin or Munich, I wouldn’t worry myself too much with Europe. How many times has the media panicked about “Europe Troubles” in the last 20 years?”

Cody back here in real-time again. Can you believe that two years ago, those headlines were already reading like a broken record? My mom taught me a long time ago that “You can always find another crisis if you look for it.” And that’s the main point about this endless European debt crisis. These countries can’t pay back their loans. Their banks are insolvent even after all these bailouts so far.

As I’ve said for five years now, the only way that we’ll ever get out of these negative feedback loop of bailed out banks/austerity/more bailed out banks/more austerity is to force losses on everybody who risked their capital and lost.

But what most analysts miss about that endless negative feedback loop is that it really can seem endless. Yes, the system has to reset and recognize those losses one way or another. But the ability for these governments both in Europe and in the US to continually redistribute wealth and earnings from the taxpaying masses to the banks and biggest corporations on the planet can truly last so long so as to seem “endless”.

And while as a citizen of this country and of this planet, I’m offended by all that overt and covert welfare for the largest corporations and banks, as an investor and trader and writer, I’ve been positioned ahead of time to try to benefit from that analysis. Here’s another quote from that same “Europe Troubles…Again” Revolution Investing newsletter from two years ago:

“Will people in Ireland buy fewer iPads in 2011 and 2012 because their economy was blown up by their banks? Probably. But will Apple’s earnings still go up in 2011 and 2012 by 20-30% per year? Probably. So even as we’ve got a lot of macro-economic hedges in our Revolution Investing model portfolio, I’m not turning bearish because Ireland’s imploding in front of our eyes.”

I’m not rushing into any new positions and indeed, I’ve been trimming down some of my call options and adding some puts in some of the Revolution Investing shorts for the last month. But I’m still bullish as the above analysis dictates us to be. Still. For now.