George Soros Thinks We're Headed Towards Another Depression

George Soros penned an article this morning that he thinks we are headed towards another Great Depression. You know what, he's right. Europe is on the verge of a collapse, and unless something gets done relatively soon, (perhaps as soon as the next few weeks), Europe is likely to experience their own 2008 scenario. The U.S. and Chinese economies are heavily dependent on exporting goods to Europe, and with Eurozone growth slowing as a result of the potential default in Greece, and then on to the rest of the PIIGS, a "Great Depression-like scenario" could very well play out. Soros lists the actions that need to be taken, according to him. He writes, "Three bold steps are needed. First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under the direction of the European Central Bank in exchange for a temporary guarantee and permanent recapitalization. Third, the ECB would enable countries such as Italy and Spain temporarily to refinance their debt at a very low cost." He said that by the European Union, and the European Central Bank taking these actions, it would provide some time to help the governments of Europe come up with a solution. Unfortunately, there is no solution to a balance sheet recession other than time. That is something that the markets are not willing to give Europe, time. It is abundantly clear the business cycle has sped up, and that time is not going to be afforded as it once was. We are lacking confidence around the world, and the fact that our political leaders can not come to a consensus on how to fix the problems around the world only makes things worse. Markets can live with good news, bad news, or no news. What they can not live with is uncertainty about the future, and that is the reason that equities, commodities, and other risky assets have sold off sharply, and why there is a rush into safe havens, such as U.S. government debt and the U.S. dollar UUP. As Europe tries to figure out what to do with the European Financial Stabilization Facility, the market is growing increasingly tired of waiting for an answer, and like a petulant child, is stomping its feet. It will either get what it wants (an increase in the EFSF used to recapitalize the banks and help the ECB buy bonds of weak European countries), or as Soros so succinctly puts it, we are headed for another depression. What do you think? Is George Soros right? Are we headed for another depression? ACTION ITEMS:

Bullish:
Traders who believe that Angela Merkel, Nicolas Sarkozy and the rest of the European leaders will get something done might want to consider the following trades:

• We could see the mother of all rallies if Europe can get its act together. Consider all things risky, like silver SLV, copper JJC, and tech, such as Apple AAPL.

Bearish:
Traders who believe that Soros is right and we do head into a depression may consider alternate positions:

• If we do hit into a depression, consider going long the inverse ETFs as hedges for your portfolio. Consider names like ProShares UltraShort S&P500 ETF SDS, Direxion Daily Real Estate Bear 3x Shares DRV, and Direxion Daily Finan. Bear 3X Shs ETF FAZ.
  
  

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