Three Things Investors
Don’t Know About Europe
How To Buy Bullion
(What to Ask and What to Own)
The Recipe For Hyperinflation
http://albertpeia.com/europebullionhyperinflation.htm
Three Things Investors Don’t Know About
Europe
October 22, 2012
Europe
is heading into a full-scale disaster.
You
see, the debt problems in Europe are not simply related to Greece. They are
SYSTEMIC. The below chart shows the official Debt to GDP ratios for the major
players in Europe.
As
you can see, even the more “solvent” countries like Germany and France are
sporting Debt to GDP ratios of 75% and 84% respectively.
These
numbers, while bad, don’t account for unfunded liabilities. And Europe is
nothing if not steeped in unfunded liabilities.
Let’s
consider Germany. According to Axel Weber, the head of Germany’s
Central Bank, Germany is in fact sitting on a REAL Debt to GDP
ratio of over 200%. This is Germany… with unfunded liabilities equal
to over TWO times its current GDP.
That’s
one thing most invetsors don’t know about Europe.
To
put the insanity of this into perspective, Weber’s claim is akin to Ben
Bernanke going on national TV and saying that the US actually owes more
than $30 trillion and that the debt ceiling is in fact a joke.
What’s
truly frightening about this is that Weber is most likely being conservative
here. Jagadeesh Gokhale of the Cato Institute published a paper for
EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to
418%.
And
of course, Germany has yet to recapitalize its banks.
Indeed,
by the German Institute for Economic Research’s OWN admission, German banks
need 147 billion Euros’ worth of new capital.
To put this number into perspective TOTAL EQUITY at the top three banks
in Germany is less than 100 billion Euros.
And
this is GERMANY we’re talking about: the supposed rock-solid balance sheet of
Europe. How bad do you think the other, less fiscally conservative EU members
are?
Think
BAD. As in systemic collapse bad.
Indeed,
let’s consider TOTAL debt sitting on Financial Institutions’ balance sheets in
Europe. The below chart shows this number for financial institutions in several
major EU members relative to their country’s 2010 GDP.
|
Country |
Financial
Institutions’ Gross Debt as a % of GDP |
|
Portugal |
65% |
|
Italy |
99% |
|
Ireland |
664% |
|
Greece |
21% |
|
Spain |
113% |
|
UK |
735% |
|
France |
148% |
|
Germany |
95% |
|
EU as a whole |
148% |
Source: IMF
As
you can see, financial institutions in Germany, France, Italy, Spain, the UK,
and Ireland are all ticking time bombs.
Indeed, taken as a whole, European financial institutions have more debt
than Europe’s ENTIRE GDP.
And
this is only the “official” numbers. When you account for off balance sheet
liabilities, bank’s are even more indebted than this!
That’s
the second thing most investors don’t know about Europe.
Let’s
compare the situation there to that in the US banking system.
Taken
as a whole, the US banking system is leveraged at 13 to 1. Leverage levels at
the TBTFs are much much higher… but when you add them in with the 8,100+ other
banks in the US, total US bank leverage is 13 to 1.
The European banking system as a whole is leveraged at nearly twice this
at over 26 to 1. That’s the ENTIRE European Banking system leveraged at near
Lehman levels (Lehman was 30 to 1 when it collapsed).
To put this into perspective, with a leverage level of 26 to 1, you only
need a 4% drop in asset prices to wipe out ALL capital. What are the odds that
European bank assets fall 4% in value in the near future as the PIIGS continue
to collapse?
And at that point the entire EU banking system collapses.
To
summate, everything I’ve been writing about for nearly a year will still
happen. The fact that I was early and we were stopped out of our Euro
Crisis trades because the ECB promised “unlimited” bond buying right before the
Fed announced QE 3 doesn’t change the ultimate outcome: the EU breaking
up and a global financial meltdown.
On
that note, if you are not preparing for a bloodbath in the markets, now is the
time to do so. The reality is that the Central Banks are fast losing their grip
on the markets. They’ll never admit this publicly, but I can assure you that
Bernanke and pals are scared stiff by what’s happening in the banking system
right now…’
-----
How To Buy Bullion (What to Ask and What
to Own)
October 21, 2012
Quite
a few articles have been written about the importance of owning Gold and other
precious metals as a means of maintaining one’s wealth in the face of rampant
money printing by the world’s Central Banks.
Today
I’m going to share some ideas on how to actually buy bullion.
As
far as precious metals go, you need to:
1)
Own actual Bullion
2)
Store it yourself (not in a bank)
I
do not recommend owning a paper gold-based ETF because frankly the custodial
risk is high (that is, there’s no telling if the Gold is even there or
who would get it if the ETF is liquidated).
In
comparison, physical bullion, stored outside a bank, is literally money in
hand. You know where it is and you can find out what it’s worth. Compare that
to a Gold ETF in which you’re hoping that the bank actually has
the Gold and that it could actually send it to you if you requested
(fat chance).
In
terms of actual gold coins, there are three coins that comprise the bulk of the
bullion market. They are Kruggerands, Canadian Maple Leafs, and American Gold
Eagles. I’ve been told to avoid Maple Leafs by both a trader and a bullion
dealer as they can easily be scratched which damages the gold and reduces the
coin’s value.
In
terms of silver, the easiest way to get it is via pre-1965 coins (often termed
“junk” silver). You can also get silver one-ounce rounds (coin-like medallions)
and 10-ounce bars. Or you can buy Silver Eagles coins.
I
cannot tell you which dealer to go with, but look for someone who’s been dealing
for years (not a newbie). You should always ask for references from the
dealer (former clients you can talk to about their purchases/ experiences).
Some
warning signs to avoid are dealers who try to store your bullion.
Never, I repeat, never store your bullion with someone else. Always store it
yourself. Also, be sure to talk to the dealer for some time and ask him or her
numerous questions about the industry, the coins, etc. (feel free to test him
or her on the information I’ve provided you with e.g. the three most liquid
Gold coins, etc.). If they can answer everything you ask in a knowledgeable
fashion, their references check out, and you verify everything they say with a
3rd party, you should be OK.
On
that note, we just published a Special Portfolio of unique inflation hedges:
investments that will not only maintain their purchasing power but will
outperform even Gold and Silver as the Fed and ECB debase their respective fiat
currencies…
-----
The Recipe For Hyperinflation
October 20, 2012
For
the last year, I’ve steered clear of commenting on the US Presidential election
for the simple reason that I wanted us to be closer to the actual date before I
went through the process of explaining what’s to come.
The
reason for this is that elections by their very nature are conflicting
processes. Most people vote based on emotions when we are in fact electing
someone to fulfill a role that is economic in nature.
This
is evident in the fact that the political hot issues being promoted (abortion,
gay marriage, etc.) are in fact peripheral (they directly impact a small
minority of the population) while the larger more pressing issues (the US
deficit, the debt, the US Dollar, the Fed) receive very little airtime.
I
didn’t want to get sucked into this because frankly, there’s no point. The US
is facing much bigger issues than whether or not someone wants us to pay for
their birth control or whether people of the same gender want to be married.
I
apologize if this offends anyone, but this is the truth. Today, the US is
running its fourth $1+trillion deficit. Our Deficit to GDP ratio is nearly 10%.
Our “official” Total Debt to GDP is well over 100% though when you include the
debt hidden in various Government entities and unfunded liabilities we’re well
over a Debt to GDP ratio of 300% at this point.
To
put these numbers into perspective, Greece had a Deficit to GDP ratio of 12%
and a Debt to GDP ratio of 150% when it first entered its sovereign debt
crisis. It’s since seen a GDP collapse of 20%: one of the largest economic
collapses worldwide in the last 30 years.
Of
course, you cannot simply compare economies by just two numbers. The US has
many advantages Greece does not, including:
1)
The US has never defaulted on its sovereign debt
2)
The US has its own Central Bank that can print Dollars (Greece’s Central Bank
cannot print Euros)
3)
The US is the largest most dynamic economy in the world and the provider of the
world’s reserve currency: the US Dollar.
Because
of this, the US gets a pass where other countries (Greece, Spain, Ireland,
Portugal, Italy and soon France and Germany) do not. However, this will not
always be the case. Once the debt implosion finishes in the EU, it will then
spread to the UK, China, Japan, and finally the US.
At
that point, the US will experience something very similar to what Greece has
experienced.
Timing
this in advance is virtually impossible. But we get clues as to when it might
happen. Last year, the US Federal Reserve monetized over 70% of all debt
issuance. The recipe for hyperinflation and a currency collapse has been the
same throughout history: the rampant monetization of deficits.
Thus
far, we’ve managed to get away with this for the reasons I listed above.
However, this will not always be the case. And if the US does not deal with its
debt problems now, we’re guaranteed to go the way of the PIIGS, along with an
episode of hyperinflation.
That
is THE issue for the US, as this situation would affect every man woman and
child living in this country.
On
that note, if you are not preparing for a US debt collapse , now is the time to
do so. The reality is that the Central Banks are fast losing their grip on the
markets. They’ll never admit this publicly, but I can assure you that Bernanke
and pals are scared stiff by what’s happening in the banking system right now.
If
you’re looking for someone who can help you navigate and even profit from this
mess, I’m your man. My clients made money in 2008. And we’ve been playing the Euro Crisis to
perfection, with our portfolio returning 34% between July 31 2011 and July 31
2012 (compared to a 2% return for the S&P 500).
Indeed,
during that entire time we saw 73 winning
trades and only one single loser. We’re now positioning ourselves for the next round of the Crisis with
several targeted investments that will explode higher as the global debt
implosion accelerates.
To
find out what they are, and take steps to protect your portfolio from the
inevitable collapse…
Graham
Summers