Lately, I’ve been less focused on the global markets because I’m so focused on Mongolia. However, it’s hard to ignore what’s going on in Europe as it affects all of us. Let me put it bluntly, they have about a week to figure this out, or they’re going back into the Dark Ages. They really have three choices; let the banks fail and destroy their currency, print massively and destroy their currency or find a leprechaun that can conjure up a better solution. I don’t see how this can go on much longer. Unfortunately, the Europeans seem to still favor the leprechaun approach. That didn’t work for Ireland, and they’re the country of leprechauns. Does Germany have a chance?
What amazes me so much about Europe is that the European leaders don’t seem to understand the enormity of the problem. They’ve adopted a blasé attitude that blames Greece, yet they don’t bother to look internally at their own banks that lent to Greece. They refuse to understand that the whole thing will collapse unless they are aggressive. The time for small tweaks was ten years ago when these problems were building up. Now, only shock and awe will save Europe.
A few months ago, the PIIGS were on the ropes facing rapidly increasing borrowing costs. Who would ever want to lend money to spendthrifts? Three weeks ago, Italy saw its government bond spreads blow out. Then France came under attack. Last week, supposedly immune Germany saw its bonds begin to weaken. Previously, European investors abandoned the PIIGS for stronger credits. Now investors just want out. It’s been an epic failure of political leadership. Let’s face it; investors are fleeing the Euro-zone. They’d rather own Norwegian Krone, Swedish Krona, Danish Kroner or frankly anything but Euros.
What’s the next step? If I know anything about politicians, when it comes down to it, they want to get reelected. The Dark Ages just aren’t an option. Get ready for the mother of all print-fests. The ECB will print, Japan will print, and the US will print. If you don’t own your full gold position, you are being reckless. Gold is down $200 from the highs. I don’t know how much lower it goes, but this week I’m adding to my already massive position. I always thought that the technocrats would find a better solution than to print. I should have known better. You cannot run a currency by politburo. At least the Soviets were united in a common goal of world domination. The European Union cannot agree on if drinking water is a cure for dehydration. (I wish I were kidding)
The joke was that the US Dollar stood for ‘The Fed Owes You Nothing,’ and the Euro stood for ‘Who Owes You Nothing.’ Suddenly, that joke isn’t as funny anymore. I have no exposure to the Eurozone and I feel over-exposed. No matter how I think about the world, I want exposure to precious metals, the companies serving the precious metal industries and those countries that will be largely immune to the collapse of the Western financial system. Looking through my positions, I hardly have anything that doesn’t conform to one or more of these themes.
I’ve always told myself that the final straw would be when investors start to flee Germany, as that would force Merkel to act. The European leadership still doesn’t realize just how bad things are about to get for them. I give it a week or two at most. Get ready for the printing press. This week, the bond market has forced their hand. Either they act, or the whole experiment ends.