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Sorry. I don’t make the news. I just report it and I continue to believe the risks [facing the world] are so serious
that…this is what will happen next. Soon Greece will default…[and] this will begin a chain reaction of [events leading to… I lay it all out in this short article and I think you will agree that it makes absolute sense.] Words: 912
So says Porter Stansberry (www.thedailycrux.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Stansberry goes on to say, in part:
Soon Greece will default…[and] this will begin a chain reaction of [events leading to] European bank failures, big losses in the commercial paper market, plummeting share prices, the global economy moving into recession, unemployment worsening, political tensions increasing, civil unrest, much lower commodity prices, more quantitative easing and the euro falling to parity with the USD.
Default of Greece>European Bank Failures>Major Commercial Paper Losses>
The default of Greece will begin a chain reaction of European bank failures because most banks in Europe have only written off a small portion (21%) of the value of the Greek bonds they hold. French banks are particularly vulnerable right now. This, in turn, will cause banks to stop lending to each other out of fear [and] it will also lead to big losses in the commercial paper market. That’s how the crisis will spread to the U.S. – our money-market funds still hold roughly 42% of the assets in loans to Europe’s banks.
Plummeting Share Prices>
Companies with exposure to European financial assets (like GE) and those that depend heavily on the commercial paper market for funding (like Capital One) will see their share prices plummet.
Recession>Higher Unemployment>Heightened Political Tensions>Civil Unrest
As the global economy stalls and then moves into recession, unemployment will worsen… and political tensions will greatly increase. I expect large-scale civil unrest in both Europe and the U.S.
Sharply Lower Commodity Prices Including Oil, Gold, Silver, Copper, Coal, etc.
In the short term, commodities are also likely to fall sharply. The crisis is nearing a breaking point. Europe represents the world’s largest economic area. I expect oil will fall at least in half from its peak. You could see silver fall, temporarily, by maybe another 30%. Gold could fall by maybe 25% from its peak. Base metal and energy commodities – stuff like copper and coal – will get crushed, like they did in 2008.
Much Higher Interest Rate Spread Between Junk Bonds and European Bank Debt>
In short, this is Europe’s turn to have a Lehman Brothers-like banking collapse. Only this time, it will involve dozens of huge banks and several different countries, all of which have different ideas about how the crisis should be solved – and that means it will probably be a longer and deeper crisis than Lehman Brothers. During the Lehman crisis, the peak interest rate spread between junk bonds and U.S. Treasuries was around 22%. The spread on European bank debt could get at least that high, as will most of the sovereign debt of the peripheral nations, and we’re just not there yet.
Further Quantitative Easing> Declining Euro to Eventual Parity With USD
Sooner or later, [however, we will] see a massive reversal. The Fed will step in to support the ECB, and a tremendous amount of new euro will be issued. I expect the euro to fall to parity – 1:1 – with the dollar before this crisis is over. The hard part will be knowing when the time comes to jump back into blue-chip stocks, strategic commodities (like oil shale assets), discounted corporate debt (which I believe will get much, much cheaper from here), and strategic metals (like gold, silver, copper, and iron).
Is there a chance I’m wrong? Is there any realistic way to solve this crisis without a Greek default and a European banking crisis? I don’t see how. Germany is the only truly solvent, large European country left and the German voters continue to hand the ruling party loss after loss in local elections, specifically because the public is almost unanimously against Germany bailing out the rest of Europe. Likewise, the German representative of the ECB resigned last week out of protest against any future quantitative easing, aka money-printing.
My Investment Advice for Such Times
What should you do while this crisis continues to deepen? The same advice I’ve been giving since March 2010. If you’re sophisticated, you want to build a large book of short sells to hedge your stock market exposure. You should own at a minimum 15% of your assets in gold and silver. If you’re unable or unwilling to hedge your portfolio, I recommend putting half your portfolio in Treasury notes (via the iShares short-term Treasury Bond fund, SHY) and half your portfolio into gold (via the iShares gold fund, GLD). Doing this 50-50 split between gold and the U.S. dollar is the only true way to go to “cash,” given the tremendous uncertainty in the future of the global paper money system.
Conclusion
I wish I had better news… or a more promising strategy I could endorse but, as always, I’ve got to write what I believe.
*http://www.thedailycrux.com/content/8768/Porter_Stansberry
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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. [In fact,] George Soros thinks we are headed towards another Great Depression and, you know what, he’s right! What do you think? Is George Soros right? Are we headed for another depression? Words: 530
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The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers in 2008. The risks of an economic and financial crisis even worse than the previous one – now involving not just the private sector, but also near-insolvent sovereigns – are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown? [Below I recommend 8 ways that would do just that.] Words: 1641
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For decades, the governments of the western world have been warned that they were getting into way too much debt. For decades, the major banks and the big financial institutions were warned that they were becoming way too leveraged and were taking far too many risks. Well, nobody listened so now we get to watch a global financial nightmare play out in slow motion. Grab some popcorn and get ready. It is going to be quite a show. [Let me explain.] Words: 1075