Investors globally have never faced risk of the magnitude
that the we are now exposed to. But sadly very few are aware of the
unprecedented risks the world is facing. For the ones who understand risk and
take the right decisions, it will “lead to fortune”. Only very few will
choose that route. Instead most investors will continue to live in the hope
that current trends will go on forever but sadly these people will end up “in
shallows and in miseries”.
Risk is now staring us all right in our face but very few
people can actually see it.
Let’s just be clear what some of the events that will change the face of
the earth are:
- No Sovereign state will ever repay their debt
– That is an irrefutable statement and anyone who doesn’t understand
that lives in denial.Sovereign debt has increased exponentially in the
last couple of decades and governments neither can nor have the
intention of ever paying their creditors. They can’t even afford to pay
the interest and this is why an ever increasing number of countries have
negative interest rates. So not only will they not repay the capital but
investors now pay bankrupt nations for the privilege of holding their
worthless paper. It is incomprehensible that investors are
prepared to hold nearer $100 trillion of debt with no yield or negative
yield and no chance of getting their money back. No one worries about
the return OF their money and now it seems that investors don’t even
worry about getting a return ON their money. This is a shocking
state of affairs that eventually will lead to a total collapse of all
sovereign debt.
No bank will
ever give depositors their money back – I know that very few
believe this statement. Because, if bank depositors did, they would not
hold around $200 trillion of assets in the financial system plus another
$1.5 quadrillion derivatives in the banking system. Bank stocks in
Europe, whether it is Deutsche Bank in Germany or bank Monte Paschi in
Italy are continuing to crash to new lows. As I stated in a recent
article, the share price of most European banks as well as many US banks
like Citigroup or Bank of America have collapsed 70-95% since 2006 and
they are on their way to ZERO. Consumer borrowing is still growing
exponentially. Student loans in the US is now $1.4 trillion up a MERE 3x
since 2006. And the delinquency rate is increasing exponentially as most
students can’t find a job.- Stock markets will fall 90% or more – I
know that most investors will think that this is a sensational statement
from someone totally deranged. But let me just remind investors that
when the Dow crashed 90% between 1929 and 1932, the economic conditions
in the USA and the rest of the world were far superior to the ones we
are experiencing currently. Economic conditions are deteriorating fast
worldwide but stock markets are continuing to go up to dizzy levels.
Investors are putting their faith in funny or printed money. S&P
earnings have declined for 5 straight quarters. The Dow is now valued at
a dizzy 24x GAAP earnings. And sales revenue, adjusted for share
buybacks is down 1/3rd since 2006. Yes, governments worldwide will this
year launch the most massive money printing programme in history. But
that will be like pushing on a string and will have zero effect on the
world economy. The time when the misconceived Keynesian methods of
creating prosperity by printing worthless pieces of paper (or electronic
money) is now passed. The printed money will only exacerbate the debt
problem. And the world will soon learn that you cannot solve a problem
by applying the same methods that caused the problem in the first place.
Property
markets will collapse – Low interest rates and speculative
frenzy have created bubble property markets worldwide. We had the first
warning signal in 2006 but through massive money printing and guarantees
to the extent of US$25 trillion, governments and central banks managed
to postpone the inevitable. Since then global debt has increased by
2/3rd and interest rates have declined from around 6% to zero or
negative. In Switzerland a 15-year mortgage now costs 1.25% and in
Sweden you don’t need to ever amortise your mortgage. And in the UK, 6
major commercial property funds have now frozen redemptions. That
represents 50% of the commercial property funds and is a grave sign that
should be taken as seriously as the 2006 subprime crisis. China with its
$34 trillion debt and many ghost towns and empty properties will also
have massive problems.- Currencies will go to ZERO – The
deficit spending of most countries and ensuing debt explosion will put
continues pressure on all currencies. Most currencies have lost 97-99%
in real terms in the last 100 years. The last 2-3% fall will probably
take place in the next 4-7 years. But the problem is that this last fall
is 100% from now. This means that all currencies will go to their
intrinsic value of ZERO in the next few years. So any cash savings will
be worthless.
Geopolitical
risk, terrorism and social unrest – These risks are higher than
ever in history whether it is in the Middle East, between the US and
Russia, China etc or civil unrest in Europe, the US, China or the rest
of the world. Social unrest, terrorism and civil war will also become
part of normal life in many countries. What has happened in Paris,
Brussels, Nice, Orlando, Baton Rouge and Turkey is just the beginning of
a trend that will spread across the globe. It will lead to a much less
safe world for many years. It will also reduce tourism and commercial
flights dramatically. In a less secure environment, people will choose
to stay at home.
The above sounds to many like a prophecy of doom and gloom. For investors
who want the good news, they can just listen to any TV channel or read the
newspapers. There are very few places where risk is spelt out properly. I
obviously hope that my forecasts above are totally wrong. But I fear that I
will be right. And therefore I believe that it is essential for investors as
well as people who don’t have much to protect to take whatever measures they
can.
Gold and silver will not solve all the potential problems or catastrophes that
the world will encounter in the next few years. But it is probably the best
insurance that investors can hold to protect capital against the potentially
biggest destruction of wealth that the world has ever encountered. Naturally
it must be physical gold and silver and it must be held outside of the
financial system.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
matterhorn.gold
goldswitzerland.com
Some of Egon’s future speaking engagements:
Annual Global Access Asset Protection & Investment
Conference. September 18 – 24, 2016. Vienna, Austria.
This conference is primarily for US tax residents
IPI Fall Forum for Private Investors. October 5- 6, 2016. New
York, USA.
For Family Office Members of IPI
The 14th Asia Pacific Family Office Conference. November 14 –
16, 2016. Hong Kong.
For Family Offices
Mining & Investment Latin America.
October 24 – 25, 2016. Lima, Peru.
Mines & Money. November 28 – December 1, 2016. London,
UK.
