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Action yesterday across markets was bearish and set
alarm bells ringing - in particular the action in the PM sector, where the
Head-and-Shoulders bottom pattern that we have observed in PM sector stock
indices appears to be aborting. If it does abort it will probably mean that
the broad market will go into the tank, and that is precisely what we can
expect to happen if Europe should fail.
It has to be said that up until now we - and most of
the rest of the world - have blithely assumed that, confronted with
catastrophe, European leaders will overcome their differences and solve
Europe's problems by printing up a few trillion euros to paper over the
cracks, US style, and keep the show on the road for a year or two longer, but
it is now becoming increasingly apparent that the scale of the problems is so
gargantuan that there may be no credible or workable solution. The sad fact
of the matter is that the bungling, discordant self-serving buffoons who run
Europe may well have left it too late. If
Europe should fail - and the markets look set to pass judgement
on it next week, after a weekend of crucial meetings, then the consequences
will be unthinkable, yet think about them we must.
if Europe should fail this is what we can expect to happen - European
banks will crash and burn and take down major US banks, which are already
walking wounded basket cases anyway. We are likely to see a lengthy
unscheduled "bank holiday" - banks will slam their doors and if
your money is still inside their vaults then you are out of luck. Major
disruptions in supply and distribution of food and fuel in particular will
trigger general panic, and riots and mob violence will spread rapidly - what
we have seen on TV happening in Greece will suddenly happen on the streets of
the US and many other countries. Stockmarkets will
crash in a manner that will make 2008 seem like a "walk in the
park". Virtually every asset class and investment will crater -
especially commodities, stocks and Real Estate. The euro will be vaporized.
The tidal wave of funds liberated by this mass panic are going to have to go
somewhere and normally we would expect them to go into the US dollar and
Treasuries, but with US banks failing even this cannot be relied upon. The
one surefire investment category that will shine - provided that is that the
markets or brokerage houses etc involved with these
transactions don't themselves fail - is "misfortune securities",
meaning bear ETFs and Puts.
The gravity of this crisis is such that we are not
simply talking about protecting investments and making opportunistic gains
out of the mayhem that will ensue, if
Europe should fail, we are talking survival issues as well, as due to the
interconnected nature of the global economy things could become very ugly,
very fast across a broad front. If you want to learn what life is like when
banks suddenly slam their doors, then you should read up on the Argentinian
crisis of the early noughties. The middle class
suddenly found themselves disconnected from their savings, and as many of
them lost their jobs at about the same time, they became instantly destitute,
and forced to swap their possessions for food. Crime soared and people who
had been used to living relatively cushy lives suddenly found themselves
living on the edge in a law-of-the jungle nightmare. If Europe should fail this is what may quickly become reality not
just in Europe but in the acutely fragile and vulnerable US and many other other countries as well. Other undesirable consequences
will be unemployment rising to incredible unprecedented levels, so that
students leaving college will have almost ZERO chance of finding work. The
travel industry, much of which is non-essential, will be devastated with
airlines slashing flights and going bust and hotels suffering extremely low
occupancy rates.
With things rapidly coming to a head in Europe, this
catastrophic chain of events could be set in motion as early as next week. So
stop and think about this for a moment - WHAT
WILL YOU DO, AND WHAT SITUATION WILL YOU FIND YOURSELF IN, IF BANKS SLAM
THEIR DOORS WITHIN THE NEXT COUPLE OF WEEKS? - are you starting to see
what I am driving at? Good, then here is what you do. You go down to the bank
either today (Thursday) or tomorrow - we have the luxury of another day - and
draw out a stash of cash - sufficient to keep you and your family in food and
essentials for at least a month and preferably more like 3 months. When you
stroll into the bank it will feel surreal, everything will appear normal and
people will be standing in short lines and chatting and smiling etc, and you may find yourself thinking "That Maund's lost it - he's completely off his rocker",
but if the danger I have described should become reality then you are going
to be mighty glad you visited the bank this week, instead of turning up in a
couple of weeks to find the doors shut and a huge crowd of desperate people
outside hurling rocks at the windows. If this danger does not become reality,
and there is a miracle solution to Europe's problems and everything returns to
"normal", then you have lost nothing and you can stroll down to the
bank again and pay the funds back into your account in a few weeks time, once you are convinced it is safe to do so.
No-one will think you are crazy because of course you don't have to tell
anyone why you are drawing out the money.
What would be the effect on the Precious Metals
sector, if Europe should fail? - sadly it will crater along with the rest of the market and
we saw early evidence of that with the "shot across the bows"
yesterday when the sector fell heavily on a broad market retreat. Now, we
don't know for sure that Europe will fail, but the situation is very
precarious and it looks like a 50:50 chance at this point that this dire
scenario will prevail, or at least a 30:70 chance that it will. The danger is
sufficiently great that we need to be aware of it ahead of time, so that we
don't get caught out and go into blind panic along with the mob. What you do
about this will depend on your own personal situation and investment orientation.
There are various ways to handle it - you can pull in close stops on PM
investments, which is recommended, hedge with bear ETFs and/or options, and
the more aggressive and opportunistic amongst you can set yourselves up to
make a fortune in options if the markets crater, accepting fully the risk of
losing your stake if the crisis is averted or at least postponed
significantly.
Let's hope Europe doesn't fail - but be ready if it
does.
First posted on http://www.clivemaund.com/ at 7.30 am EDT on 20th October 11.
Footnote posted a day later on 21st - there isn't
much that suprises me these days, but I have
received some news from a subscriber, Bob, in the US, that has left me
dumbfounded, and disappointed I must say as I was looking forward to being
responsible for causing a run on the banks. Here is what he told me -
"Clive, in your post "If Europe Should
Fail" you have recommended your subscribers "draw out a stash of
cash". I have been attempting to do this with my local bank for over a
week and this is what I have learned. The only "cash" the banks
have at their facilities is the bare minimum for making change, cashing
paychecks, etc. More than 99% of their so called cash "assets" is electronic
money and not "cash" money. They are generally happy to transfer
this electronic money elsewhere but if you want the real thing,
"cash", the bank will, in most cases, either deny your request or
put you off for, in some instances, more than a week. Many of my contacts
across the US are reporting having the same problems I am having getting any
significant amount of cash out of their local banks."
The meaning of this is clear - TAKE WHAT YOU CAN WHILE YOU CAN.
Specific information on a range of bear ETFs and
options follows for subscribers...
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