Largely because of the sovereign debt crisis, the world’s second most important paper currency — the euro — has lost a massive 16% of its value in just over four months! At that rate, Europeans will effectively see HALF their wealth wiped out in just one year.
But as disturbing as that may be, I count three solid reasons why this great sovereign debt crisis could do even greater damage to the world’s MOST important paper currency to you and I — the dollar.
In Europe, governments are at least STARTING to cut their deficits.
But like four drunken sailors on shore leave, Obama, Geithner, Reid and Pelosi are still spending hundreds of billions of dollars that not only we don’t have ... but that we are BORROWING!
In Europe, the Central Bank is NOT aggressively inflating the money supply.
But like a deranged counterfeiter, Fed Chief Benjamin Bernanke is printing unbacked paper dollars like there’s no tomorrow...
In Europe, the governments and their people are not beholden to China or Japan to finance their follies.
But we ARE! And U.S. Treasury Secretary Timothy Geithner is begging China to effectively devalue the dollar by jacking up the value of the Yuan...
In Europe, this great sovereign debt crisis has already pushed the euro off a cliff — driving it to 14-month record lows in the last week alone.
So I ask you: What will happen to the U.S. dollar — YOURS & MINE — when investors awaken to the fact that our government’s debt load is larger than that of most of these failing European nations?
The answer is clear: The tragedy now taking place in Greece and the rest of Europe is merely a sneak preview of the chaos that this great debt crisis is about to bring to America’s shores.
When you read today’s top news stories, simply substitute “The U.S.” for “Greece” ... “Washington” for “Athens” ... and “the U.S. dollar” for “the euro” ... and you will, in effect, be reading tomorrow’s top news stories today.
Obama, Bernanke, Reid, Pelosi, Geithner, The Clintons, GW Bush, Paulson, Dodd & Barney Frank and others will be remembered as arsonists. And, they keep asking for more matches – and Congress keeps giving them more.
Other minor players who either deserve a firing squad, like the Bonus babies (Fannie Mae’s Franklin Raines and Goldman Sacks’ Blankfein come to mind) are soon forgotten while some who aren’t as culpable, like former Fed Chairs Greenspan & Volker will be pilloried by history, as after all, the winners write history.
BUT – the Greek Tragedy is NOT the driving force of this week’s Drama on Wall St.
Last week I told you that DOW 11,000 was unsustainable. I believed that there COULD be high volatility, but the last two days out paced even my contrarian prognostication… but… what is up with this “bounce”? I understand how so called programmed trading can set off a 1,000 point drop and I know that in such a situation there is oft times a midsession bounce as traders buy in on assets exposed to undervaluing at the valley of such a drop, …. But… as I pointed out last week, the markets were vulnerable to such sudden corrections because there was at that time & still is a huge shortfall in liquidity.
The very signal which forecast this week’s events are exactly the reason that the degree of “rebound” must be questioned. Where did the liquidity to fund such a rapid rebound come from when absence of liquidity was the problem? Who or what is falsely supporting our liquidity?
I leave you to ad 2+2 and get the Fed as the answer.
If you are a player you need to take this into account as you adjust for the next round.
3 three thoughts for the coming week:
1. Gold. Yep… more gold. Even as it flirts with 1,200 an ounce it is still a buy sign. I increased my gold holding by 20% this quarter. Gold stocks are good; some will skyrocket as there will be consolidation in the mining sector by the big winners. Bullion is good, but I don’t like holding hard money too closely. I hold mine offshore. Risky? Less so than under you pillow or in a bank deposit box. I like a 25% of portfolio position in gold at this time. Silver, platinum, palladium, copper are also all reasonable buys if you wish to diversify within metals. Silver is always as a good in hand hedge.
2. Oil & Natural gas. Energy stocks. When BP drops, buy it. Natural gas – buy it. I especially like Canadian gas & hydro trusts. A. they pay dividends, always have – B. they are not demoninated in Euros or US dollars. While the Canadian dollar is nothing to brag about, it is less exposed to sovereign debt than either of its western counterparts.
3. China investments. I do not currently hold any, but I am watching their markets via a broker who specializes in offshore investing. He is an all in bull here while I am less inclined. I can’t point to any sound fact to back this statement, but I believe that the Chinese will have a sharp adjustment (a crash?) sooner than later. Nothing can go as well for as long as their markets have without an adjustment. 6 to 9 months out? Perhaps as big as a 30% sudden slide. They don’t have a strong or broad base of consumer equity. China is a bubble.
It will be the sudden drop in Chinese speculation that will trigger the long predicted run on the dollar. I plan to be ready to buy at the bottom of that adjustment with gold.
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