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The Calm Before the Coming Sovereign Debt Storm

Economics / Global Debt Crisis Feb 28, 2010 - 05:48 PM GMT

By: Martin_D_Weiss

Economics

Best Financial Markets Analysis ArticleIf I’ve learned anything in the 39 years since I founded Weiss Research, it’s this: I can only help those who are ready to help themselves.


I’ve seen it happen so many times and it never ceases to concern me deeply:

Our research reveals a crisis on the horizon — something with the power to wipe out millions of portfolios and retirement plans. 

We shout our warnings from the rooftops over many months — doing our very best to demonstrate that the crisis is inevitable and approaching quickly, urging investors to protect themselves.

But although a sizable minority do get their money to safety, the MAJORITY are lulled by the calm before the storm. They do not heed our warnings. They do not make it to a safe haven in time. And they do not take steps that could multiply their wealth in the worst times.

What concerns me the most, however, is the undeniable reality that …

Each major new crisis is coming with greater frequency AND breadth

The first major crisis of the 21st Century came with the Tech Wreck of 2000-2002, causing U.S. investors and households losses of $6.5 trillion in their stocks, mutual funds, life insurance and pensions, according to the Fed.

The second major wipeout struck six years later, with the Housing Bust of 2008-2009, causing more than DOUBLE the damage — $15.5 trillion.

Now, just ONE year later, we can already see a third big round of losses on the horizon because of the Great Sovereign Debt Crisis. And, unfortunately, this new episode has the potential to cause even deeper wounds — not only to individuals, but to entire nations … not only bringing turmoil to financial markets but also threatening to destabilize governmental institutions.  

The signs are everywhere and they’re so clear even the most secretive among our leaders have been forced to admit them:

  • We have reckless stimulus spending. We have shrinking tax revenues. And, we have the greatest explosion of government debt in history.

  • Major euro-zone nations — Greece, Portugal, Spain, Italy, Ireland and others — are now so indebted that some could find it difficult — if not impossible — to make payments on that debt in the weeks and months ahead.

  • Other countries outside the euro zone — the Ukraine and Iceland … Latvia and Lithuania … Pakistan and Dubai … Argentina and Venezuela — are even more likely to default than Greece, according to the latest cost of 5-year insurance contracts (credit default swaps). 

  • ANY kind of default by just ONE of the major nations could trigger a chain reaction of bond market price collapses, ultimately costing investors trillions of dollars.

  • Interest rates would spike and credit markets, already shaky, could freeze globally.

  • And the fledgling recovery in the U.S. would be crushed, prompting a potentially vicious double-dip recession.

Right now, in order to help major euro-zone nations avoid default, bailouts are being discussed — even promised — by European leaders. But any such bailouts could be both too little and too late.

They would be too LITTLE because they would do nothing for the counties outside the euro zone.

And they would be too MUCH because any such bailouts would …

  1. Be a blatant violation of the rules upon which the European Monetary Union was founded. Breaking them can only shatter confidence in its bonds and its currency, the euro.

  2. Tacitly commit European leaders to bailing other member states.

  3. Potentially sink the finances of the “stronger” euro-zone countries that would, in effect, be assuming the bad debt of the weaker ones.

  4. Destroy the value of the euro, quite possibly ending its tenure as a world currency.

As a result, euro-zone officials find themselves in a classic lose-lose situation: 

If they allow Greece to default, investors will dump sovereign debts in up to a dozen other countries, setting off a chain reaction of bond market collapses in the euro zone, driving the euro deep into the gutter and gold sharply higher.

I they bail Greece out, they will effectively assume a direct or indirect liability for the bad debts of nearly every nation in the euro zone, also driving the euro into the gutter and gold higher.

Either way, Either way, you MUST not ignore what’s happening and how it can impact you. If you haven’t done so already.

  1. Dump long-term bonds of any color or shape.

  2. Except for some very special situations we’ve recommended in our services, reduce your exposure to the stock market dramatically.

  3. Maintain a very LARGE cash position, stashed in the safest, most liquid instruments in the world — short-term Treasuries.

  4. To help protect yourself against money printing and currency erosion, hold a long-term position in gold.

  5. Above all, approach all investments with caution. Do NOT overinvest.

Good luck and God bless!

Martin

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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